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Us $400Bn Qe 14.tr 307M Uk $75 Qe 2Tr 66M

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http://uk.reuters.com/article/2011/09/21/uk-usa-fed-idUKTRE78K20K20110921

The Federal Reserve on Wednesday ramped up its aid to the beleaguered U.S. economy, launching an effort to put more downward pressure on long-term interest rates and increase its support for housing.

Warning of "significant" downside economic risks, the U.S. central bank said it would launch a $400 billion (256 billion pounds) program to twist its $2.85 trillion balance sheet more heavily towards longer-term securities by selling short-term government debt to purchase longer-dated Treasuries.

It also said would reinvest proceeds from maturing mortgage and housing agency bonds it holds back into the mortgage market, an acknowledgment of just how weak housing remains.

The Fed is clearly aiming at getting house prices back up and the house equity credit card up and running.

The Fed is going long to try and persuade people to borrow more over the long term?

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http://www.federalreserve.gov/newsevents/press/monetary/20110921a.htm

Release Date: September 21, 2011

For immediate release

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.

Related Information

Maturity Extension Program and Reinvestment Policy

Frequently Asked Questions: Maturity Extension Program and Reinvestment Policy

Current FAQs

September 21, 2011

What is the Federal Reserve's maturity extension program (referred to by some as "operation twist") and what is its purpose?

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I was looking for the bloody obvious, scrolled up and down and thought nothing relates to it!

Obscurity is great...

We had a vote while you were away and decided that thread was the best way to wind you up.

Dow not impressed is it - down over 200 points since the annoucement.

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I was looking for the bloody obvious, scrolled up and down and thought nothing relates to it!

Obscurity is great...

OK, let's make this the silly Twist thread

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Interesting comment on ZH

With this move, they're trying to keep the banks solvent, not trying to get people to buy homes. Banks balance sheets are dripping with mortgages, so dropping interest rates is simply a mechanism to keep existing home values stable near the top and therefore BAC - Countrywide solvent.

The value of a home is inversely correlated with interest rates, just like the price of bonds. That is, if you increase rates, the value of the bond will fall. So they're just trying to prop up home values with this move. It's not to entice new borrowers - not directly anyway.

http://www.zerohedge.com/news/operation-twist-here-fed-buy-400-bilion-usts-6-30-year-maturity-roll-maturities-mbs#comment-1693921

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The Fed is going long to try and persuade people to borrow more over the long term?

The alternate perspective is that they're trying to encourage people to lock-in long-term finance terms - rather than rely upon being able to borrow short-term and roll the debt.

Assuming I understand "the twist" - I approve of this - I think. It should encourage the government and corporates alike to focus more on strategic projects - rather than trying to game financing costs by gambling on short-term deals.

I can see it narking the commercial banks - however - as they profit from lending long term and borrowing short term... and this move will narrow the spread from which they profit - making banks even less profitable than they are at the moment.

I'm also curious to know more about this plan to sell £400bn short-term debt... I wonder where the market will be found for investments that yield even less than existing bonds... I wonder if this debt won't actually be sold as would other bond auctions... but, if that's the case, I'm less clear about how this 'twist' differs from QE. More research required, I think. :)

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I'm also curious to know more about this plan to sell £400bn short-term debt... I wonder where the market will be found for investments that yield even less than existing bonds... I wonder if this debt won't actually be sold as would other bond auctions... but, if that's the case, I'm less clear about how this 'twist' differs from QE. More research required, I think. :)

Thousands of comments posted on-line, everyone with a different view as to what it means but no one truly knowing.

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The alternate perspective is that they're trying to encourage people to lock-in long-term finance terms - rather than rely upon being able to borrow short-term and roll the debt.

Assuming I understand "the twist" - I approve of this - I think. It should encourage the government and corporates alike to focus more on strategic projects - rather than trying to game financing costs by gambling on short-term deals.

I can see it narking the commercial banks - however - as they profit from lending long term and borrowing short term... and this move will narrow the spread from which they profit - making banks even less profitable than they are at the moment.

my thoughts exactly, as set out on the eponymous if anyone's interested thread.

I'm also curious to know more about this plan to sell £400bn short-term debt... I wonder where the market will be found for investments that yield even less than existing bonds... I wonder if this debt won't actually be sold as would other bond auctions... but, if that's the case, I'm less clear about how this 'twist' differs from QE. More research required, I think. :)

The MMFs will lap it up, they are gasping right now.

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The MMFs will lap it up, they are gasping right now.

Care to elaborate? I find it difficult to imagine Money Market Funds being desperate to sell longer-term debt (for which there's a ready market at near face value) to buy shorter-term lower-yielding debt. It just doesn't make any sense to me. Who out there is desperately looking for an even lower rate of return on cash savings?

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Care to elaborate? I find it difficult to imagine Money Market Funds being desperate to sell longer-term debt (for which there's a ready market at near face value) to buy shorter-term lower-yielding debt. It just doesn't make any sense to me. Who out there is desperately looking for an even lower rate of return on cash savings?

you may recall that in the recent market rout and scramble for quality short term collateral there were big MMF redemptions that tried to get into various US banks and were threatened and in some cases served with a deposit fee.

FT alphaville have covered the extreme shortage of short term collateral at length over the last few months with negative repo rates caused by settlement failure penalties plus increased fdic premiums the result.

If the shortage of short term collateral were to continue they'd break the buck and in fact IIRC the fed has been conducting short term reverse repos with MMFs to stop that happening.

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If the shortage of short term collateral were to continue they'd break the buck and in fact IIRC the fed has been conducting short term reverse repos with MMFs to stop that happening.

Coo - I must read Alphaville more often, it seems. ;)

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Looks like they where hoping for more than just keeping the banks solvent.

I've thought about this... and I think it does the opposite.

While it flattens the yield curve - making long term debt cheaper relative to short-term debt, a narrower yeild curve means reduced profits from one of the most reliable profit centres in banking - i.e. lending long term and financing it short-term. This move will reduce gross revenue for banks from wholesale activities - which means reduced bonus pools and that other risks won't have a cushion of safe year-on-year profit to fall back on.

I'm liking the move more and more.

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I've thought about this... and I think it does the opposite.

While it flattens the yield curve - making long term debt cheaper relative to short-term debt, a narrower yeild curve means reduced profits from one of the most reliable profit centres in banking - i.e. lending long term and financing it short-term. This move will reduce gross revenue for banks from wholesale activities - which means reduced bonus pools and that other risks won't have a cushion of safe year-on-year profit to fall back on.

I'm liking the move more and more.

I personally think we are going global zombie. They don't have the guts to admit the entire system is insolvent so will do anything to prevent it from being revealed.

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I personally think we are going global zombie. They don't have the guts to admit the entire system is insolvent so will do anything to prevent it from being revealed.

In a sense, that's a given. The open question is how the 'zombie banks' will behave - and what implications this has for the corporate landscape.

I think QE led banks to believe that their short-term profitability would be underwritten - and "the twist" suggests the opposite - unless they can find radical new profit centres.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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