The Federal Reserve’s $600 billion bond-purchase program may be yielding results like those of a Kennedy-era effort to spur growth, which spawned a 0.15 percentage point reduction in long-term Treasury yields, said researchers at the central bank.
Economists with the Fed’s regional bank in San Francisco likened “Operation Twist,” a 1961 initiative by the central bank and President John F. Kennedy’s administration, to the current round of Treasury-securities purchases known as “QE2.” The researchers drew the comparison in a paper released today, without quantifying QE2’s effects.
Policy makers are set to convene in Washington on April 26-27, and determine whether to stick with the $600 billion program through June. The Fed and the Kennedy administration used Operation Twist to bring down long-term rates, while keeping short-term rates unchanged, and stimulate a weak economy, the paper said.
“We find that Operation Twist lowered long-term Treasury yields by about 0.15 percentage point (15 basis points), an amount that was highly statistically significant, but moderate,” wrote research associate Titan Alon and senior research adviser Eric Swanson. The results “can be used to estimate QE2’s effects.”
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