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Policy / ECONOMY

Fed Extends Operation Twist

photo of Catherine Hollander
June 20, 2012

The central bank is doing the Twist again.

The Federal Reserve Board’s policy-setting committee announced on Wednesday that it would continue a program to extend the average maturity of securities in its portfolio, known as Operation Twist, through the end of the year. The program was announced in September and was set to expire this month. The goal of extending the program is to “put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” according to the statement released by the Federal Open Market Committee.

The move is seen as one of the weaker actions the bank could have taken. “Given that the Fed has only very limited holdings of short-term assets left to sell, that would be a largely symbolic gesture,” Paul Ashworth, chief North American economist at Capital Economics, wrote in a research note this week.

 

The Fed declined to take a more aggressive measure, pursuing a third round of bond-buying, also known as quantitative easing, or QE3. Operation Twist is less controversial than QE3; at a recent Joint Economic Committee hearing with the chairman, it received no mentions. Quantitative easing has been a favorite political target of Republicans, who argue that the easy policy risks sparking inflation.

Richmond Fed President Jeffrey Lacker was the only committee member who voted against continuing the Twist.

The Dow Jones industrial average fell on the Fed news.

Later in the afternoon, the central bank will release officials’ updated economic forecasts and projections for the Fed funds rate. Fed Chairman Ben Bernanke is scheduled to give a press conference with reporters at 2:15 p.m. 

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