A divided US Federal Reserve gathers this week in a market-anticipated drive to realign monetary policy in the face of high unemployment and rising inflation. A third round of bond-buying or quantitative easing (QE) has its critics both from within the FED and from Congress. It has been claimed that QE2 was largely to blame for significantly higher commodity and food prices...Seemingly out of arrows the FED may consider the implementation of the failed 1960s plan colloquially dubbed 'Operation Twist' as a short-term boost for the US economy.
The idea is to use FED funds to lower longer-term interest rates by selling short-term government securities (or by letting them mature) and buying longer-term government bonds.
The FED's increased demand for long-dated bonds would drive down the interest rate payable to find willing buyers. The falling long-term interest rate at the expense of higher shorter rates would alleviate the debt-burden of struggling home-owners and at a stretch also boost business spending.
That's all good and dandy but in case you've forgotten, this crisis is the result of policy indecision, poor judgement and political ineptitude.
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