It was announced in September of 2011 that the Federal Reserve would perform such a move. By buying more of the existing supply of longer-term Treasuries, the intention was to nudge the price of those securities a little higher, or move the long-term interest rate a little lower. The hope was by lowering interest rates, there would be slightly more opportunity for households and firms to borrow or refinance and perhaps increase spending a bit.
In 2011, the Fed said that it intended over the course of the following nine months to sell about $400B worth of its Treasuries that had maturity between three months and three years in order to buy securities with maturities of six years or longer.
The expression "Operation Twist" was originally used to describe a plan implemented by the Kennedy administration and the Fed in 1961, and named after a dance popular at the time. The idea then was that the U.S. Treasury would replace some of its longer-term debt with shorter-term obligations, and the Fed would simultaneously sell some of its shorter-term securities and buy longer-term Treasuries.
The Operation Twist move in 2011 was met with some controversy. A high-profile letter from Republicans urged the central bank not to intervene in the economy more than it already had. And within the Fed, three regional bank presidents, Richard Fisher of Dallas, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia, dissented against the decision.
On Sept. 27, 2011, Federal Reserve Bank of Atlanta President Dennis Lockhart said the decision to tweak the maturity of the Fed's massive balance sheet would likely have a “modest” impact on helping the economy achieve a better rate of growth.
Federal Reserve Bank of San Francisco economist Eric Swanson presented a paper at the Brookings Institution, however, that made a convincing case that Operation Twist did succeed in its goal of modestly lowering long-term interest rates (PDF file).
- Fed's 'Operation Twist,' Explained In 4 Easy Steps. NPR.
- Fed Will Lengthen Maturity Of Securities In Bid To Cut Rates. Bloomberg.
- Fed's Bullard-Operation Twist likely to simply end. Reuters.
- GOP To Bernanke: No New Stimulus. CNNMoney.
- Federal Reserve launches Operation Twist. CNNMoney.
- Fed Dissenters Speak Out. CNNMoney.
- Fed’s Lockhart: Operation Twist Should Have ‘Modest’ Impact. WSJ.com.
- Paper: Innovations In Interest Rate Policy. JSTOR.
- Paper: Conducting Monetary Policy At Very Low Short-Term Interest Rates. Federal Reserve.
- Paper: Let's Twist Again. Eric Swanson.