Operation Twist? Fed Unlikely To Use Policy Tool
In the search for potential policy tools that the Fed might employ under current distressed conditions, some analysts have floated the idea that the Fed could implement something dubbed as “Operation Twist.” This policy would consist of implementing measures to increase interest rates at the short end of the curve (including sale of short-term Treasury securities) and purchasing Treasuries at the long end in order to lower long-term interest rates.
In this article I want to briefly explain why I believe that an “Operation Twist” is highly unlikely.
I would like begin by quoting current Chairman Ben Bernanke, in a speech he delivered in 2002:
“An episode apparently less favorable to the view that the Fed can manipulate Treasury yields was the so-called Operation Twist of the 1960s, during which an attempt was made to raise short-term yields and lower long-term yields simultaneously by selling at the short end andComplete Story »