Woolnough: Twisted thinking by the Fed?

TWISTED THINKING

M&G bond star Richard Woolnough explains why the Federal Reserve's latest unconventional policy move could have unintended consequences for the US economy.

The Fed, like many central banks, has moved on from conventional to unconventional policy tools to attempt to stimulate the flagging US economy. This was manifested yesterday by the introduction of 'Operation Twist'. Operation twist involves the Fed selling $400bn of US treasuries with maturities of three years or less to buy $400bn of US treasuries with maturities between six and 30 years. This action is designed to drive long-term rates down to stimulate the economy. In a conventional world, one would expect the fall in long-term interest rates to boost consumption through driving r...