The Federal Open Market Committee will announce today that the central bank will begin buying $45 billion in Treasuries each month that will increase its balance sheet to almost $4 trillion, according to a Bloomberg survey of economists.
All but one of 49 economists forecast the FOMC will purchase the securities to bolster the existing program to buy mortgage bonds. Policy makers pledged in October to continue that plan until the labor market improves “substantially.”
As Fed Chairman Ben S. Bernanke considers whether to worry about inflation before adding to his record monetary stimulus today, he has the bond market on his side.
Debt traders are anticipating prices will accelerate at the Fed’s target rate of about 2 percent during the next five years. The break-even rate for five-year Treasury Inflation Protected Securities -- the yield difference between the inflation-linked debt and Treasuries -- was 2.07 percentage points yesterday. That’s a measure of the outlook for consumer prices over the life of the securities.
The Fed ends its policy meeting a day after Obama reduced his demand for tax increases to $1.4 trillion from $1.6 trillion in the budget negotiations. A failure to reach an accord will push the economy over the fiscal cliff of automatic spending cuts and tax boosts.
The two sides remain hundreds of billions of dollars apart on taxes and spending, and they continue to disagree on whether a year-end deal should include an increase in the debt limit and fresh programs to boost the economy.
Obama and Boehner spoke by telephone yesterday, according to a Republican congressional aide and an administration official.
Bank of America Merrill Lynch’s MOVE index, which measures price swings of U.S. government securities based on options, fell to 51.6 basis points yesterday. It dropped to 51 on Dec. 3, the lowest on record going back to April 1988. Volatility climbed to 264.6 basis points in October 2008 as the global financial crisis intensified.