The Federal Reserve decided to increase the duration of their securities holding by selling US$400 billion worth of the Treasuries holdings of maturities below 3 years to buy the equal amount of Treasuries of maturities between 6 years to 30 years. So Operation Twist is official.
At the same time, to support the mortgage markets, the FOMC decided to reinvest principal payments from its holding of agency debt and agency mortgage-backed securities into agency mortgage-backed securities.
There has been no change to interest rate and others. Some anticipated that the Fed might reduce interest on excess reserve (IOER), but that did not happen.
There are three dissents, voting against the decision to implement further easing: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser.
Now this is the curious bit: basically everyone expected that the Fed will do a twist, yet most (including myself) expected that the Operation Twist will not help the economy. Curiously, in anticipation of today's meeting, the US market has gone ahead of itself. After the meeting, here is the "sell on news" sell-off, and US dollar strengthens.
On the economy, the FOMC statement wrote:
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
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