This Friday, Federal reserve chair Ben Bernanke will give his annual speech at Jackson Hole, Wyoming. At last year's Jackson Hole address, Bernanke introduced his plans for a second quantitative easing program, or QE2. This year, there's a lot of buzz that Bernanke will announce a fresh round of an old Fed strategy called Operation Twist.
The idea is that the Fed would make an effort to sell short-term Treasury notes and use the proceeds to buy up longer-term ones. The goal is to increase shorter-term interest rates while reducing longer-term ones, making long-term investments in things such as mortgages more desirable.
The Fed tried this once before, back in 1961, when the Twist was still a recent dance craze; the Fed was supposedly trying to twist the yield curve. Economists generally considered Operation Twist a failure the first time around, but more recent research has been able to remove other countervailing economic factors and isolate the Fed's impact on yields themselves. The current thinking, then, is that Operation Twist actually accomplished what it was intended to do. We may soon see whether that will be the case again.
No comments:
Post a Comment