This week will be dominated by the two day Fed meeting starting tomorrow.
The consensus seems to be that the FOMC will adopt some variation of what’s casually called “Operation Twist”, whereby the Fed will further depress yields by dumping short-term government debt and buying more long-term debt, while ultimately keeping the nominal size of the Fed’s portfolio the same.
But there’s a twist.
As WSJ’s Jon Hilsenrath reports (via FT Alphaville), the Fed is likely to start communicating various employment/nominal GDP/inflation targets that it’s shooting for, before-which it’s unlikely to hike rates. So whereas the last time around the Fed took the unusual step of promising low rates all the way out until 2013, it may be preparing to put a qualitative end point on low rates as well.
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