Bottom Line – Fed moves to push rates lower, boost economy

21 09 2011

Fed moves to push rates lower, boost economy

By Patrick Rizzo

It’s back to the future for the Federal Reserve.

Faced with a lethargic economy and a jobless rate hovering at 9 percent, the nation’s central bank reached deep into its bag of tricks on Wednesday and pulled out a move to spur growth that it hadn’t used in 50 years.

The move, dubbed “Operation Twist” when it was first used in 1961, is intended to push long-term interest rates lower, which the Fed hopes will spur lending, induce businesses to expand and tempt consumers into spending more.

The Fed said it will do that by selling $400 billion worth of short-term securities to buy longer-term securities, much like a homeowner swapping higher-rate credit card debt for a lower-rate home equity loan.

“The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less,” the Fed said in a statement after a meeting of its Federal Open Market Committee.

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