Most U.S. Treasurys prices were little changed on Tuesday in light, choppy trading, as investors awaited the outcome of the Federal Reserve's two-day meeting for signs whether the U.S. central bank might scale back its current stimulus program.
The Fed's policy statement, to be released after the close of the meeting on Wednesday afternoon, could affirm remarks by Chairman Ben Bernanke last month that the U.S. central bank may decide to trim the amount of bond purchases in the next few meetings if the economic recovery maintains momentum.
"It's very complicated for the Fed," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "On the one hand their policies aren't having a huge impact on economic growth going forward, on the other hand they need to maintain the ability to act in case deflation does occur."
The Fed's $85 billion monthly purchases of Treasurys and mortgage-backed securities have lowered mortgage rates to support the housing recovery and stoked appetite for stocks and other risky investments.
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The program has been less successful in creating jobs and snuffing out the risk of deflation - a downward price spiral that can cripple an economy. The Fed bought $1.46 billion in bonds due from February 2036 to February 2043 on Tuesday for its Quantitative Easing 3 or QE3 program.
If the Fed on Wednesday signals the likelihood it might buy fewer bonds later this year, analysts said it is critical for policy-makers to tell markets they will continue to support the economy by keeping short-term interest rates near zero even well after it stops buying bonds.
Investors will also monitor what Bernanke says at his press conference after the releases of the Fed's policy statement, set for 2 p.m. (1800 GMT) on Wednesday.
Reporters will likely press Bernanke not only on the path of monetary policy but also his future at the Fed. U.S. President Barack Obama hinted in a television interview that aired on Monday that he may be looking for a new Fed chief, saying Bernanke has stayed a lot longer than the current chairman had originally planned.