Fed launches $400bn ‘Operation Twist’

美联储启动4000亿美元“扭转操作"

The US Federal Reserve launched “Operation Twist” on Wednesday in a bold attempt to drive down long-term interest rates and reinvigorate the faltering economy.

The central bank said that it would buy $400bn of Treasuries with remaining maturities of six to 30 years and finance that by selling an equal amount of Treasuries with three years or less to run.

“This programme should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” said the Fed. The policy is named after a similar attempt to “twist” the shape of the yield curve in the early 1960s.

The Fed also sprung a surprise by pledging to reinvest any early repayments from mortgage securities back into debt issued by mortgage agencies such as Fannie Mae and with a strong focus on buying 30-year Treasuries. “We got a double twist,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Such a large move suggests that Ben Bernanke, Fed chairman, is deeply alarmed by the slowdown in the economy and decided to override opposition on the rate-setting Federal Open Market Committee and provide as much stimulus as easily practical. The purchases will run until June 2012, setting the course of Fed policy for the next nine months.

“Operation Twist” means that the Fed will increase the average maturity of its assets but, unlike its previous rounds of quantitative easing, the Fed will not expand the overall size of its balance sheet. Economists estimate that a twist of $400bn could have a similar effect on interest rates to the $600bn QE2 programme of outright asset purchases that the Fed launched last November.

The FOMC voted for the decision by a majority of seven to three.

The decision to launch such a large twist means that the Fed has almost no scope to increase the size of the policy further. If it wanted to ease monetary policy further in the future by buying more assets, it would probably have to increase the overall size of its balance sheet.



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The decision to launch such a large twist means that the Fed has almost no scope to increase the size of the policy further.

The decision to launch such a large twist means that the Fed has almost no scope to increase the size of the policy further.

sprung a surprise by pledging to reinvest any early repayments from mortgage securities back into debt issued by mortgage agencies

sprung a surprise by pledging to reinvest any early repayments from mortgage securities back into debt issued by mortgage agencies