The Federal Reserve on June 20th it announced its seventh installment of unconventional monetary policy since running out of orthodox ammunition in late 2008, when short-term interest rates fell, in effect, to zero. It would purchase $267 billion of long-term bonds by the end of the year, paid for from the proceeds of sales of short-term bonds already in its portfolio.
The move extends a program, called Operation Twist (because it "twists" the slope of the yield curve on bonds) . To lower long-term interest rates down in the hope of stimulating demand, the Fed announced Operation Twist program last autumn and due to expire this month, under which the Fed has swapped $400 billion of short-term bonds for long-term ones. Previous initiatives have included purchasing bonds with newly created money (“quantitative easing”, or QE), reinvesting the proceeds of maturing bonds, and verbally committing to keeping rates near zero for ever longer periods.
This latest round of monetary easing, like its predecessors, was motivated by the economy’s failure to grow as quickly as the Fed had forecast. Members of the Federal Open Market Committee (FOMC), the Fed’s main policymaking body, now expect growth of between 1.9% and 2.4% this year, down sharply from their April forecast of growth between 2.4% and 2.9%.