The Federal Reserve has announced its long-awaited Operation Twist scheme to help stimulate the flagging US economy.
The Fed will spend about $400bn buying back bonds maturing within three years and swapping this for longer-term debt.While the initiative pumps no new money into the economy it has the effect of keeping long-term interest rates down and boosting mortgage lending and loans to companies.
First used in the 1960s, it was named after the dance craze of the time.
The news did little to bolster sentiment on Wall Street, with shares falling heavily after the announcement.
"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," the Fed said in a statement.
"There are significant downside risks to the economic outlook, including strains in global financial markets."
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Officials at the Federal Reserve and the Bank of England are not happy to be the only game in town. Far from it. ”
The move by the Fed comes amid deepening gloom about the global economy, with the International Monetary Fund slashing growth estimates for the US, Europe, and Japan.
On Wednesday, the Bank of England said members of its Monetary Policy Committee had considered a new round of quantitative easing to pump money into the economy.Analysts said the Operation Twist move was larger than had been expected, and comes after leading Republicans this week urged the Fed not to intervene in the economy more than it has.
John Kilduff, partner at Again Capital, said: "The Federal Reserve has taken its next best shot at reviving the economy. The effectiveness of the 'twist' remains to be seen, but the acknowledgment of the downside risk to the economy is in line with the recent data points and the IMF outlook
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