Fed’s New Policy: Twist or Twisted?

Editor’s Note: The Federal Reserve is at it again, trying to develop some approach to monetary policy that will get the worst economy since the Great Depression moving in the right direction.  This time it is an approach designed to sustain long term lower interest rates.  The market has responded with another massive sell off of stock and financial advisers are concerned about what this policy will do to retirement plans.  This policy has not been used since the 1960s and many observers believe that should have been a good reason to not put such into practice today.  Here is the Wall Street Journal’s “spin” on the “Twist”:

Federal Reserve Chairman Bernanke continues to tinker with chronically ill economy.

Federal Reserve Chairman Ben Bernanke, acting more aggressively than expected, launched a new package of measures to support a limping economy and once again took the kind of unconventional approach that has become a trademark of his tumultuous five-year tenure running the central bank.

The latest move by the chairman was a decision to dramatically recast the Fed’s $2.65 trillion securities portfolio in an effort to reduce long-term interest rates. The Fed plans to shift its holdings so it will have more long-term U.S. Treasury bonds and more mortgage debt than previously planned. It hopes the lower rates will boost investment and spending and provide a shot of adrenaline to the beleaguered housing sector.

The shift toward longer-term Treasury securities was largely expected but slightly bigger than many in the markets had anticipated, and the action on mortgage bonds was a surprise.

The decision didn’t come without the kind of controversy that also has defined Mr. Bernanke’s tenure at the Fed. Three of 10 voting Fed officials opposed the action at the conclusion of a two-day meeting, saying…(read more)

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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