In an attempt to spur job creation, the Fed will continue “Operation Twist” through the end of 2012. The program is designed to lower long-term interest rates without shoveling more money into the economy.
The plight of many Americans has struggled to improve since the initiation of “Operation Twist” last October. The move was intended to produce lower yields on long-term bonds while keeping short-term rates close to the same. The Fed is now planning to sell bonds with maturities of three years or less and buy securities with maturities of six years or more. Essentially, the Fed is shifting its portfolio.
The Fed hopes that lower interest rates will prompt more borrowing and spending.
But some have questioned the effectiveness of the plan, noting that interest rates are already at record lows and growth seems nonexistent. Despite low interest rates, the demand for loans has not increased, and banks are still hesitant to give loans. Rather than speeding up, job creation is slowing. Reports from the month of May revealed abysmal figures.
Of the 12 voting members of the Fed, only one opposed the plan.
The Fed has said that interest rates should remain “exceptionally low” through 2014.