The US economy is “anemic. Growth remains low, the most recent indicators signal that the state of weakness on the labor market remains, while unemployment remains high”. Furthermore, “household consumption remains low”. The Fed statement does not mince words to underline the seriousness of the slowdown in the economy.
In summary, there are "serious risks of a downward revision of growth prospects". To correct the course, the Fed, as already foreseen, thus gave Operation Twist, a large re-edition of the maneuver which in 1961 accompanied the recovery under the Kennedy presidency. Between now and June, the central bank will purchase government bonds with maturities from 6 to 30 for an amount of 400 billion dollars. Sales of short-term titles will be spread over three years. In this way, the Fed hopes to reduce the cost of money to the benefit of investments and the recovery of employment. On the bond market, the move has already produced its first fruits: ten-year bonds fell nine points to 3,01%, the all-time low, while two-year bonds rose by 4 bp to 0,20%. The 1,87-year bond fell to its lowest yield ever at XNUMX%.
The opposition, both inside and outside the Fed, influenced the two days of the FOMC, which undoubtedly limited Bernanke's range of action. In the Open Committee, the president of the central bank received, as in August, the negative vote of three out of ten members, namely the hawks Charles Plosser from Philadelphia, Richard Fisher from Dallas and Narayana Kocherlakota from Minneapolis. More relevant is the pressure from the Republicans who are clamoring for Bernanke to cease all intervention on the markets.
In an unprecedented move, the party staff (House Speaker John Boehme, Senate Leader Eric Cantor, Federal Budget Talks Head Mitch McConnell, and Senator John Kyl of Arizona) asked Bernanke not to take initiative. “We fear – reads a letter sent to the Fed – that further interventions could worsen the state of the economy”. The reply from Barney Frank, one of the most authoritative Democrats, was immediate. "It is one of the most serious attacks on central bank independence in our history." In any case, it is the sign that helicopter Ben's room for maneuver is really narrow.
