Operation Twist- Low Rates STILL Here…

For investors  unhappy with the low yield available in the marketplace, it was not good news today that “Operation Twist” from the Fed will  keep long-term interest rates low will continue through 2014. 

For investors looking for safe, higher yield alternatives, the secondary market for annuities looks even more attractive.

Policy makers left unchanged their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The FOMC has kept the main interest rate in a range of zero to 0.25 percent since December 2008. 

We must leave  aside for a moment the advisability of our government replacing long-term securities with short-term  interest rate exposure.  It’s clear that in the decades ahead, our massive federal debt will be rolling over at higher and higher interest rates.  

Here is more from the press release:

 

 June 20 (Bloomberg) — The Federal Reserve will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012 as policy makers lowered their outlook for growth and employment.

  The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said today in a statement at the conclusion of a two-day meeting in Washington.

  The Fed said it is “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability.”

  Policy makers led by Chairman Ben S. Bernanke are taking steps to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Payrolls expanded at the slowest pace in a year in May, and the jobless rate has been stuck above 8 percent since February 2009.

  “Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the FOMC said. “The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually.”

  The yield on the 10-year Treasury note rose to 1.67 percent at 1:48 p.m. in New York from 1.62 percent late yesterday. The Standard & Poor’s 500 Index was little changed at 1,357.17 after declining as much as 0.9 percent.

 

 Language Change 

 “The Fed will do more as necessary, and this puts emphasis on it,” said Eric Green, a former New York Fed economist who is now global head of FX, Rates and Commodities at TD Securities in New York. In April the committee said it was “prepared to adjust” its securities holdings “as appropriate” 

 

 

 

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