Fed Does the 'Twist' to Boost Economy
NEW YORK ( TheStreet) -- The Federal Reserve announced it will enact "Operation Twist," selling short-term securities to buy $400 billion in long-term Treasuries to support the economy.
The decision, which was delivered at the conclusion of the Federal Open Market Committee's September meeting, caused stocks to drop despite the fact that a maturity extension was overwhelmingly expected by the market. The strategy, otherwise known as "Operation Twist," involves selling some short-term securities to buy more long-term assets, thereby lowering long-term interest rates without further expanding the Fed's portfolio.
"This is Operation Twist with a twist," said Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank. "It's probably more aggressive than what the market was expecting. The announcement came out late, but so far, stocks look spooked."
By the end of June 2012, the Committee will buy $400 billion of Treasury securities with remaining maturities of 6 to 30 years and sell an equal amount of Treasuries with remaining maturities of 3 years or less.
|Federal Reserve Chairman Ben Bernanke|
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