Another plan to adjust interest rates being mulled by the Fed

9/13/2011

The U.S. Federal Reserve may make another adjustment to interest rates that could help consumers and businesses with debt and future credit, as well as improve the small business lending market.

In the interest of spurring economic growth, the Fed has proposed a revisit of Operation Twist. By shifting the rates on long- and short-term debt, the plan would have the agency opt for more of the longer, purchased with the proceeds of the shorter. Certain securities are already being bought in order to bring down rates.

"In a kind of homage to the dance craze, traders started calling it Operation Twist," said Eric Swanson of the Federal Reserve Bank of San Francisco, as reported by the New York Times.

The idea was first put in motion in the recession of the early 1960s, and the effects of the initial Twist were debatable. The '60s were both socially and economically turbulent, and the recovery from that recession was fueled by far different industries than those upon which the U.S. economy currently depends.

Should Operation Twist be revisited, it will be the second significant effort by the Fed to help the economic situation by enacting rate-lowering measures, following the announcement earlier this summer of low rates through at least late 2012.