Federal Reserve commits $267B more in stimulus
The Federal Open Market Committee (FOMC) met for two days this week, and has opted to continue Operation Twist.
The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy.
“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference in Washington following a two-day meeting of the Federal Open Market Committee. “Additional asset purchases would be among the things that we would certainly consider.”
When Bernanke says ‘additional asset purchases’, it’s really a euphemism for a euphemism. He’s referring to the policy of quantitative easing (QE), aka “money printing”. A better name for Operation Twist might be Diet QE. It’s a similar, but more indirect way of injecting money into the economy.
The stated goal of Operation Twist is to keep interest rates low so that consumers and businesses will borrow more money. The Treasury also likes low interest rates, because they keep the cost of servicing the federal debt low.