The Federal Reserve could replace its expiring Operation Twist with a smaller program of outright Treasury purchases and still get the same boost to the economy, the head of the St. Louis Fed told the Wall Street Journal on Monday.
Under Twist, the Fed buys $45 billion in long-term Treasuries each month, and sells a like amount of short-term Treasuries.
The program is designed to push down borrowing costs so that the economy will grow faster.
Many economists believe that policymakers will decide to buy Treasuries outright next year to make up for the yearend expiration of Twist. Some Fed policymakers have suggested that the Fed should fully replace Twist with outright Treasury purchases next year.
But St. Louis Fed chief James Bullard said such an approach might too “dovish,” because outright purchases are probably more stimulative than when the Fed funds its long-term Treasury purchases with sales of short-term bonds.
