Note: Robert Smith has one operation twist explainer on Wednesday morning Edition, complete with soundtrack. Fixed the history of
The interest rate for 10-year government bonds is 2.95%. This is crazy low. It is lower than inflation. The Federal Reserve can be but to push the rate even lower.
The Fed has a key instrument available at its: interest rates. So, if the Fed officials on unemployment are concerned, they try, lower interest rates in an effort to lend the support of people and companies and to spend.
And unemployment 9 per cent (and underlying inflation at 2 percent), the Fed should, try to keep hammering to push interest rates.
The Fed will announce two-day meeting his next move on Wednesday, at the end of a major. This movement is expected to something known as "Operation Twist."
Here is what it means.
1. The Fed has already more than $1 trillion in bonds purchased in recent years in an effort to reduce the medium and long-term interest rates.
2. Much Staatsanleihen - hundreds of billions of dollars of value - medium-term bonds, which are due in the next few years.
3. Medium-term government bond interest rates are already close to 0 (zero).
4. The Fed can some to sell these medium-term bonds and proceeds to longer-term bonds buy - such as 10-year Treasuries.
Operation twist the interest rate on 10-year bonds in theory, should sink. (If the demand for bonds, interest rates fall.) Many other rates - including mortgages - on the 10-year Treasury rate are bound. So that should decrease interest rates across the Board.
But it is unclear how much effect that will have trouble.
The term "Operation Twist" originated in the early 1960s, when the Fed is trying something similar. It can have a low effect had - a recent study found that drove it the interest rate on Treasury bonds by 0.15 percentage points. But the impact on the mortgage was small, and the impact on the business of borrowing costs was tiny.
In addition, the interest rates are already super low. And it is clear that the economy has many problems, the low interest rates alone cannot solve. Fed officials know, but there is not much that they can do about it. All they can do is to keep, which try to lower interest rates.
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