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FOMC minutes explain Operation Twist extension

Federal Reserve
Federal Reserve building Washington D.C.

A high level of uncertainty about GDP growth and unemployment in the U.S. and Europe's own financial crisis led to the Federal Reserve's decision last month to keep the federal funds rate at “exceptionally low levels” through the end of 2014, according to minutes released Wednesday.

The 19 members of the Federal Open Market Committee agreed there were modest gains in the economy since their April meeting, but those gains were smaller than anticipated, while risks to U.S. investors from Europe's financial crisis “appeared to increase.”

One slight bit of good news, committee members found, was that while yields on investment- and speculative-grade corporate debt remained historically low, their spreads over comparable Treasury securities “widened a bit.” Yields on 10-year Treasuries reached an historic low, and the committee attributed a sizable portion of the decline in rates to “greater safe-haven demands by investors.”

Release of the minutes explaining the FOMC's thinking had little effect on the markets, said Nils Overdahl, senior fixed-income portfolio manager with New Century Advisors. “It changes very little. But I was interested to see that they are reiterating a willingness to do more and the need to study additional policy tools, which makes a lot of sense. Given the lack of details, the market didn't grasp at that.”