hurricanemaxi
Joined: 17 Sep 2011
Posts: 83
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 Posted: Fri Sep 23, 2011 10:25 pm Post subject: Fed’s ‘Operation Twist’ Fails to Convince Investors It Will |
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The Federal Reserve’s plan to buy longer-term Treasuries has succeeded in bringing down interest rates while not convincing investors the unorthodox monetary policy will strengthen economic growth.
Stocks fell for a second day yesterday as investors sought safe assets after the Fed announced it would shift $400 billion of its Treasury securities holdings into longer-term debt. Treasury 30-year bonds rallied, sending yields to the lowest level in almost three years. The Dow Jones Industrial Average had its biggest two-day loss since December 2008.
Chairman Ben S. Bernanke and his policy-making colleagues cited “significant downside risks” to the outlook in their Sept. 21 statement and announced a program that economists say will provide at most a small boost to the recovery. The Fed has not done an adequate job explaining to investors how the program will help, said Jerry Webman, chief economist at OppenheimerFunds Inc. in New York.
“It would be helpful if someone would lay out exactly the economic mechanism that gets us from yet lower interest rates to actual economic activity,” said Webman, whose firm has $177 billion in assets under management. “Tell us why this is supposed to work because we’re missing something here. The market is obviously missing something here.”
The stock fall after the announcement of the Fed’s policy known as “Operation Twist” contrasts with the reaction to the second round of quantitative easing, when the S&P 500 rose 24 percent from the day Bernanke first signaled the policy in August 2010 to its conclusion in June. That rise in equities helped strengthen the economy, Webman said.
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