Fed's 'Twist' Plan Gains Momentum
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"Operation Twist" appears to be gaining momentum in the halls of the Federal Reserve.
On Wednesday, both the Washington Post and Wall Street Journal have articles discussing this potential plan to shift the composition of the Fed's balance sheet to longer-dated maturities. This would be done by selling short-term securities and buying longer-term securities and would have the desired result of lowering longer-term interest rates. This option would also not come with much political tension, as it would not require additional "money printing."
The recent minutes from the August 9 FOMC meeting showed this option is on the table:
"Others suggested that increasing the average maturity of the System's portfolio--perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities--could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve's balance sheet and the quantity of reserve balances."
While "operation twist," as it is being called, appears to be gaining momentum, other options are also on the table. This includes additional asset purchases or a reduction in the interest rate paid on excess reserve balances.
The FOMC will be meeting on September 20 and 21 to discuss these and possibly other options to help support economic growth.
In addition to more monetary easing, Fed Chairman Ben Bernanke has been very vocal in calling on fiscal policymakers to stimulate the economy with tax breaks and spending plans. On Thursday, President Obama is expected to unveil a $300 billion job creation plan.
On the Web:
Washington Post
Wall Street Journal
On Wednesday, both the Washington Post and Wall Street Journal have articles discussing this potential plan to shift the composition of the Fed's balance sheet to longer-dated maturities. This would be done by selling short-term securities and buying longer-term securities and would have the desired result of lowering longer-term interest rates. This option would also not come with much political tension, as it would not require additional "money printing."
The recent minutes from the August 9 FOMC meeting showed this option is on the table:
"Others suggested that increasing the average maturity of the System's portfolio--perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities--could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve's balance sheet and the quantity of reserve balances."
While "operation twist," as it is being called, appears to be gaining momentum, other options are also on the table. This includes additional asset purchases or a reduction in the interest rate paid on excess reserve balances.
The FOMC will be meeting on September 20 and 21 to discuss these and possibly other options to help support economic growth.
In addition to more monetary easing, Fed Chairman Ben Bernanke has been very vocal in calling on fiscal policymakers to stimulate the economy with tax breaks and spending plans. On Thursday, President Obama is expected to unveil a $300 billion job creation plan.
On the Web:
Washington Post
Wall Street Journal
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