The Federal Reserve announced on Wednesday (,
) that it will sell some of its shorter-term assets in order to buy more longer-term assets. Here I assess some of the possible consequences of this move.
By Cullen Roche: The Operation Twist rumors are picking up momentum. In several interviews Friday morning on Bloomberg both Jan Hatzius of Goldman Sachs and David Rosenberg of Gluskin Sheff mentioned the likelihood of an Operation Twist type QE3 coming perhaps as early as September (thanks to Ed Harrison at CW).
By Investment U:
By Jason Jenkins
On Wednesday, the Federal Reserve announced it would proceed with a new $400-billion program that will tilt its $2.85-trillion balance sheet more to longer-term securities by selling shorter-term notes and using those funds to purchase longer-dated Treasuries. It’s rationale?
By Doug Short: At present we are in the early stages of the latest Federal Reserve intervention, Operation Twist, which was officially announced on September 21, after several days of rumors. We've now seen several bouts of aggressive Fed attempts to manage the economy following the collapse of the two Bear Stearns hedge funds in mid-2007 about three month before the all-time high in the S&P 500 (SPY).
We had to throw out our textbook descriptions of how monetary policy is implemented after the fall of 2008, as the Fed turned from its traditional tools to active use of large-scale asset purchases. A number of studies have now been conducted of the potential efficacy of these new policy tools. I surveyed some of the new studies last October. Today I'd like to discuss three new papers that have come out since then.
The Federal Reserve eased monetary policy to boost the flagging recovery, announcing a modest extension of "Operation Twist", that is the purchase of long-term bonds financed by the sale of short-term paper. The stock market initially sold off but has bounced back. In its statement, the Fed said:
Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.This post is a guest contribution by Asha Bangalore, vice president and economist at The Northern Trust Company.
By Paul Quintaro
On Monday morning CNBC reported that in a survey the network had conducted, 70% of respondents predicted that the Federal Reserve would undertake an 'Operation Twist' in the near future. Further, almost 80% of respondents who predicted Operation Twist believed that the Fed would act this week.