This afternoon, the FED announced that it would lower interest rates–for consumers and businesses–through a monetary tool that it uses: OPERATION TWIST. It is currently in use and this would merely extend the process.

Basically, this involves the FED selling shorter-term US Treasury securities and investing the proceeds in longer-term Treasuries. In effect, the FED would maintain its Treasury Portfolio at current levels.

The impact should be very minimal for short-term interest rates, since they are already extremely low; but, it should bring-down longer-term rates, on which many loans and mortgages are based.

The FED realizes that the Economy continues to grow; but, only modestly. With the FED Funds rate hovering between 0.00% and 0.25%, Operation Twist is one of the few options the FED has to lower rates and enhance economic growth.



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