As widely expected, the Federal Reserve yesterday announced a new iteration of Operation Twist, the plan to buy long-term securities and sell off shorter-term ones. Between now and the end of next June, the Fed will buy $400 billion worth of Treasurys with maturities between 6 and 30 years, and sell off a similar amount with maturities under 3 years. If everything works out as planned, long-term interest rates will go down, spurring business investment.
While some economists see the move as a tool that will increase overall growth, it's worth pointing out that interest rates are already pretty low, including long-term ones. The yield on the ten-year Treasury fell to an all-time low after the Fed's announcement, and 30-year mortgage rates are down to around 4 percent.
Since this program won't add anything to the Fed's bottom line, it's a relatively cheap tool to use, but remember, American businesses are already flush with cash right now. Having access to capital is not holding back most corporations. So while there isn't much opposition to this move, it remains to be seen what kind of impact it will ultimately have.
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