Understanding 'Operation Twist'

Yesterday's 'Operation Twist' announcement by the Fed left markets disappointed. It also left a lot of people on Main St. shaking their heads and wondering what the latest Fed announcement actually means.

At its core, Operation Twist is an attempt to further reduce already historically low lending rates by exchanging shorter-termed securities for those with longer-terms. The Fed hopes that the demand it creates for longer-termed securities will drive down lending rates for things like cars and mortgages and therefore stimulate demand. However, detractors have been quick to point out that with rates as low as they are, there is not much room for the market to move. For more in-depth analysis, readers can click on presentation below which was posted to YouTube by OptionAlpha. It explains what, exactly, the strategy entails and includes charts showing what the Fed hopes to accomplish.

Potential paper jam jokes aside, here's hoping the Fed gets this right; many are predicting that this is the 'strategy of last resort' on the way to another round of quantitative easing.

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