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Fed Announces Operation Twist
This article originally appeared on the Daily Capitalist.
The Fed announced Operation Twist today:
the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.
They also announced that they will continue to maintain their current level of agency debt and agency MBS. In other words, their balance sheet will remain at the current level with the same general make-up of securities. There were no other changes, such as a change in the Fed Funds rate.
Note that the usual people voted against the move: " Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time."
Here is the full text of their announcement:
Release Date: September 21, 2011
For immediate release
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.
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Someone help me. Suppose it succeeds. What does it accomplish? I guess it lowers long term interest rates, correct? And it means the FED thinks they can control short term rates. Result, the federal deficit is more immune to interest rate increases. Isn't that correct.
I see that it would distort investments between long and short term risk. But how does the fed think that stimulates the economy? Thru indirect effects in the housing market?
Or do just not understand what is going on?
You do understand perfectly!! That's why we're seeing a sell off... The Bernak's hands are tied, there it not much more he can do especailly in light of 3 members voting against even this "mild" action... Can't say for sure, but it feels like we are getting very close to the end game - two rooks, a bishop, and a few pawns remain (the two queens were just taken off the board - no more "big moves" are left, just little teaks here and there)... Will Bernak make one last ditch effort and sacrifice a few remaining pieces, or does he hold back and let things unfold a bit... The market is going to force his hand and we'll see if he is mature enough not to take the bait!! Very interesting times!!
This is a carnival act. Watch the FED, but the real action is the outsourcing of jobs from $20/hour w benefits to $5/day w/o benefits. Now who benefits?
+ $5.00 per hour bitchez
Well, I guess TBT is now officially an awful bet. Perhaps I should double down?.....How can long term rates get any lower than they are right now? Will the fed keep buying the long end beyond June 2012?
The Federal Reserve Bank is a privately owned, privately operated, for profit institution. Just like any international corporation it doesn't operate under the constraints of the constitution. It operates under commercial law similar to maritime law. Almost as if it was a ship at sea (The USS Federal Reserve). Common law as prescribed by the constitution doesn't apply.
I notice you've only been a ZH member for a couple of weeks. Stick around, concepts like this will become common knowledge.
More like the RMS Titanic, remember that Southampton to New York trip? Kinda fitting huh?
Yes, only been a member for a few weeks - However, I've been reading ZH much longer. Fantastic site - I can't express enough gratitude for this site!!
I undertand that the FED is privately owned and operated, but I don't believe that was the original intent of the Constitution. Article I, section 8 of the United States Constitution grants Congress the power to coin money and regulate its value, thus the Constitution gives Congress control over the U.S. monetary system.
With the passage of the Federal Reserve Act of 1913, Congress unconstitutionally transferred control of the U.S. monetary system to a group of twelve private banks collectively known as the Federal Reserve System or “The Fed”. By abdicating their responsibility, the Congress upset the balance of power, effectively eliminating the checks and balances the founding fathers worked so hard to create.
The division in the FED is the big news... The Bernak is already out on a limb, now he's almost totally alone doing whatever he wants. How it this a democratic process? How can one person have so much power? I thought the Constitution was about checks and balances so this kind of stuff does not happen?
Last time I checked, assigning the coining of money was an unconstitutional delegation of authority. Funny how that provision has been ignored.
See: The doctrine of nondelegation describes the theory that one branch of government must not authorize another entity to exercise the power or function which it is constitutionally authorized to exercise itself. It is explicit or implicit in all written constitutions that impose a strict structural separation of powers. It is usually applied in questions of constitutionally improper delegations of powers of any of the three branches of government to either of the other, to the administrative state, or to private entities. Although it is usually constitutional for executive officials to delegate executive powers to executive branch subordinates, there can also be improper delegations of powers within an executive branch.
- Wiki
They've been doing 'Operation Twist' since March 2009.
Nothing new here.........
maximum stability = zero