From Morgan Stanley’s David Greenlaw on the Operation Twist news…
There were two significant surprises in the FOMC statement:
First, the maturity extension was somewhat more aggressive than expected. The Fed will purchase $400 billion of securities with an average duration of about 13 years through mid-2012 and sell an equivalent amount of securities with remaining maturity of 3 months to 3 years. Second, the Fed surprised the market by announcing that reinvestment of maturing agency debt and MBS will go back into the MBS market (instead of into Treasuries). We estimate that there will be about $200 billion of such reinvestment flows through mid-2012. There was no change to interest on reserves (a modest surprise) or the language related to the 2013 “commitment” (no surprise). The same three members dissented this time around.
The worry: If the Fed surprised on the aggressive side, and markets still tanked, that sounds bad.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.