The Fed’s Twist on the Economy

By Nizar Manek, 19 June 2012
Actions taken by the Federal Reserve on Wednesday, however modest, will be tied to building trust with investors, says one Wall Street observer.
Markets may have risen on the expectation of more monetary stimulus, but the Federal Reserve won't be able to push short-term interest rates any further than zero percent: The accelerator, after all, is already pinned to the floor.
But the Federal Reserve’s Open Market Committee does have a few tricks up its sleeve to inject some cash into the economy. The market expectation is that the Fed will announce Wednesday afternoon that it will extend Operation Twist—in which it sells short-dated Treasuries and buys those with longer to run—beyond its June 30 expiration date. This is part of an effort to drive down long-term borrowing costs.
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