Daily Market Update 6/20/12

Rates faced upward pressure Wednesday ahead of this afternoon’s Fed announcement.  The Fed is expected to signal support for further easing of monetary policy, although there is wide disagreement over what actions the Fed will take.  The most likely action is an extension of the “Operations Twist” program, which involves selling short-term Treasuries and buying long-term Treasuries to push down long-term rates.  This program carries little inflation risk, but may have limited impact on the economy.  A much bigger step would be to announce a third round of quantitative easing (QE3), although the inflation risk would be considerably greater.  Rates may remain volatile throughout the day.

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