Operation Twist – Keep On Twisting
Well, for a change, the drama in Europe took a back seat to the Federal Reserve meeting. All said and done, the Fed decided on the status quo–to continue “Operation Twist”.
Operation Twist was scheduled to conclude at the end of this month, however, the Fed has now decided to purchase an additional $267 billion in longer-term Treasury bonds and sell an equal amount of shorter-term Treasuries.
During last week’s meeting, the Fed stated that their goal is to “put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative.”
In theory, lower, longer-term rates should encourage consumers and businesses to borrow and spend. This should fuel economic growth. The problem is that interest rates are already at record lows, and, the change in rates does very little for people who are savers and who have seen incomes fall amid trifling yields.
Here’s how the market ended up for the week.
There is a little bit of good news. Economic data late in the week emphasized the dribbling economy so Bernanke made it pretty clear that the Fed is prepared to do more if it doesn’t see “sustained improvement in the labor market.”
That was interpreted as a hint that a third round of quantitative easing, or bond purchases, could be forthcoming.
Also this week, the Supreme Court is expected to issue its ruling on the Patient Protection and Affordable Care Act, commonly called Obamacare.
As for oil prices–wow. The weaknesses in the global economy along with a relatively strong U.S. Dollar and ample supplies have put significant downward pressure on crude oil. As such, energy stocks have been the worst performing of the ten S&P 500 sectors since the beginning of the quarter. At least consumers are getting some much-needed relief at the pump.
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David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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