The Impotence of the Federal Reserve
The US Federal Reserve’s recent announcement that it will buy an additional $670 billion of long-term Treasury bonds over the next six months had virtually no impact on either interest rates or equity prices. The market’s lack of response was an important indicator that monetary easing can no longer increase economic activity.
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CAMBRIDGE – The United States Federal Reserve’s recent announcement that it will extend its “Operation Twist” by buying an additional $267 billion of long-term Treasury bonds over the next six months - to reach a total of $667 billion this year - had virtually no impact on either interest rates or equity prices. The market’s lack of response was an important indicator that monetary easing is no longer a useful tool for increasing economic activity.