Clive Hale: Let's twist again…

The Federal Reserve's latest cunning plan seems to have been misinterpreted by many, but not by Mr Market. This is less of a money-printing exercise, á la QE1 and QE2, than an attempt to flatten the yield curve.

The Fed has a stack of short-dated bonds, so it is going to sell $400bn of these and buy longer-dated issues with the proceeds. Borrowing rates are priced off the long end of the curve, so theoretically there will be a boost to housing and commercial lending. A similar gig was tried in 1961, when Chubby Checker was introducing us to the dancing craze of the time, which makes the Fed’s current gyrations look almost sensible in comparison. Almost, but not quite. The markets have seen through the futility of this manoeuvre. Mortgage rates are already at multi-decade lows and, by flatten...