Off The Cuff: The Fed is Merely Treading Water at This Point

In this week’s Off the Cuff with Mish & Chris podcast, Chris and Mish cover:

• Yesterday’s ‘Operation Twist’ announcement by the Fed:
  • What exactly was announced yesterday and what’s the likely impact?
    
  • Who is likely to benefit (and who isn’t)?
  • What’s likely to be announced at the next Fed meeting in six weeks?
  • How much ability does the Fed really have to influence the outcome of our economic situation anymore?

Both Chris and Mish agree that this latest move by the Fed – a “treading water” maneuver, in their opinion – won’t really do anything to materially impact the economic situation in the long run.

Yesterday’s announced Operation Twist #2 will drive up interest rates slighly at the short end of the curve and bring them down slightly at the long end, thus “flattening the yield curve.” This has the effect of making it less expensive to borrow at longer durations.

Since interest rates are already at historic lows, it’s very unclear that this relatively tepid response will make much of a postive difference at all. It’s basically an incentive to take on more debt – but who is able to do so at this stage in the game? (And while it will make it easier for governments to borrow more, do we really want that?) It certainly doesn’t help those living off of fixed income streams, who will be hardest hit as the interest payments they depend on get reduced.