The New Twist in the Fed's Operation Twist: The Ticker

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By Paula Dwyer

With a "damn the torpedoes, full speed ahead" attitude, the Federal Reserve just announced that it will indeed do the twist and buy $400 billion of bonds with maturities of six to 30 years through June, 2012, while selling an equal amount of debt maturing in three years or less. The goal is to flip the yield curve to reduce long-term borrowing costs, convince consumers and companies to buy and invest more, and keep the economy from falling back into recession.

Such unconventional monetary policy is opening the Fed to political criticism by Republicans. House Speaker John Boehner and Senate Minority Leader Mitch McConnell, in a November letter to Fed Chairman Ben S. Bernanke, said the central bank's $600 billion quantitative easing risked depreciating the dollar and causing inflation. 

On Monday, Boehner, McConnell and other GOP leaders urged Bernanke to refrain from additional monetary easing to avoid "further harm" to the economy. 

The political barbs are even coming from Rick Perry, the Texas governor and presidential candidate, who said in August that Bernanke would be treated "pretty ugly down in Texas" if he printed more money before the election.

The Fed won't be printing any new money as a result of today's action, but Republicans still aren't likely be pleased: The Fed said it will also reinvest maturing mortgage debt into mortgage-backed securities. Such recycling allows the Fed to replicate many of the effects of quantitative easing. As happened in August when the central bank pledged to keep its benchmark interest rate near zero for at least two more years, three officials dissented.

(Paula Dwyer is a member of the Bloomberg View editorial board.)

-0- Sep/21/2011 19:19 GMT