In GOP rebuff, Fed calls for a twist

The U.S. Federal Reserve said Wednesday it would swap $400 billion in short-term securities for an equal amount of long-term notes. The move is called an operational twist. It will keep the size of the Fed's portfolio unchanged, but the greater slant toward long-term securities is expected to put downward pressure on long-term interest rates. Effectively, the move is a stimulus measure designed to convince corporations that long-term borrowing is a viable business option. The Fed's Open Market Committee said in a statement that "economic growth remains slow." The various anemic sectors of the economy are familiar. "Unemployment remains elevated. Household spending has been increasing at only a modest pace in recent months," the Fed said. In addition, the Fed said, "longer-term inflation expectations have remained stable," a signal that additional stimulus to the economy would not create a destructive pattern of higher prices. The move rebuffs Republican leadership on Capitol Hill. In a letter to Fed Chairman Ben Bernanke delivered Tuesday evening, Senate Minority Leader Mitch McConnell, Senate Republican Whip Jon Kyl, House Speaker John Boehner and House Majority Leader Eric Cantor said, "We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy," The New York Times reported. It was a rare moment of direct political pressure on the central bank that prides itself on being independent when it comes to monetary policy. But some had expected some move, given the badly stumbling economic recovery. "I just don't think the Fed will sit idly as momentum fizzles in this recovery," Credit Suisse economist Dana Saporta told the Times before the announcement. In describing details of the move, the Fed said it would "purchase, by the end of next June, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of treasury securities with remaining maturities of 3 years or less."