Good day forex traders.
Have you done the twist lately? With the market buzz around the latest move by the US Federal Reserve to stimulate the ailing US economy, everyone is wondering.. What is Operation Twist?
Fear not TheGeekKnows will explain to you what is Operation Twist in of course the geeky koala way! Simple and clear.
The previous two exercises done by the US Federal Reserve, Feds for short were known as quantitative easing. Those were different from Operation Twist. We know the Feds are holders of bonds issued by the US government. Both short and long term. In Operation Twist, the Feds reduce their short term bond holdings in exchange for longer term holdings.
By selling short term bonds in exchange for long term bonds, the desired effect is to raise the prices of long term bonds due to increased demand over supply. We all know that higher priced bonds would have an effect of decreasing the yield of the bonds and hence depressing the interest rates for mortgages, bank loans, car loans etc. The desired effect is to provide a low interest rate conducive economic environment.
Operation Twist was last attempted in the 1960s and it was reported that the effect was probably only a lowered 0.15 of a percentage point. While the aim of this move by the Feds is to stimulate economic growth with easier credit conditions, it is widely believed that this alone will probably be insufficient. High unemployment and poor housing market conditions seem to be here to stay for an extended period of time
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