The US Federal Reserve policy makers may find another round of Operation Twist preferable to an outright asset-purchase program if the US economy shows further signs of weakness or risks increase.
Chairman Ben S. Bernanke on 25 April said he was prepared to take further action to aid the economy if necessary, even as he signaled that he did not see an immediate need to add stimulus with inflation near the Fed's goal and unemployment falling.
The minutes from the Fed's April meeting showed several policy makers said additional action could be necessary if the recovery slips.
With Operation Twist, the Fed seeks to lower borrowing costs through purchases of longer-term government debt.
Those purchases were offset by sales of shorter-term debt, keeping the total size of the Fed's balance sheet unchanged. The sales did not raise short-term yields because the Fed has pledged to keep interest rates near Zero at least through late Y 2014.
By contrast, the Fed's 2 rounds of large-scale asset purchases (QE) expanded its balance sheet by a total of $2.3-T. The 2nd round, amounting to $600-B and announced in November 2010, sparked the harshest political backlash against the Fed in 30 yrs.
Republicans, including House Speaker John Boehner of OH, sent Mr. Bernanke a letter saying it risked accelerating inflation, weakening the USD and fueling asset bubbles.
Consumer prices as measured by the personal consumption expenditures index, the gauge preferred by the Fed, rose 2.1% in March from a year earlier, close to the central bank's 2% inflation goal.
The Fed has already shown itself to be sensitive to political criticism by choosing to do Operation Twist which did not provoke the same type of backlash.
Stocks and bond yields have slid since the central bank's most recent meeting on 24-25 April renewed fears that Europe's debt crisis is worsening and as data pointed to economic weakness in the US.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.