It ’s back to the twist – Operation Twist, that is, or the Federal Reserve’s stimulus plan that involves selling short-term bonds and buying longer-term bonds.
In its latest monetary policy statement, released on Wednesday after a two-day meeting, the Fed announced that it would extend its previous Operation Twist to the end of the year, as many observers had been expecting, to help combat what it sees as slowing employment growth and strained global financial markets.
“This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Fed said in its statement.
The Fed also hinted that there could be more action to come: “The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
The stock market didn’t care for the statement, though -- perhaps indicating investors thought the Fed would take more drastic action. The S&P 500 was down 10 points or 0.8 per cent, to 1348 soon after its release – after being down just 6 points prior to the release. Canada’s S&P/TSX composite index also took a turn for the worse. Ten minutes after the Fed released its statement, it was down 105 points or 0.9 per cent, to 11,683.