Operation Twist

Operation Twist was a monetary policy of the United States Federal Reserve that ran from September 2011 to December 2012. The goal of Operation Twist was to lower long-term interest rates by selling short-term Treasury securities and buying long-term Treasury securities. This would increase the supply of short-term Treasury securities and decrease the supply of long-term Treasury securities, which would push down the yields on long-term Treasury securities.

Operation Twist was implemented in response to the financial crisis of 2008. The crisis had led to a sharp decline in economic activity and a rise in unemployment. The Federal Reserve lowered interest rates to stimulate the economy, but it was concerned that low short-term interest rates would lead to a rise in inflation. Operation Twist was designed to lower long-term interest rates without raising short-term interest rates, thereby stimulating the economy without increasing inflation.

Operation Twist was successful in lowering long-term interest rates. The yield on the 10-year Treasury note fell from 3.5% at the start of Operation Twist to 2.9% at the end of Operation Twist. However, it is not clear whether Operation Twist had a significant impact on economic growth or unemployment.

Operation Twist was controversial. Some economists argued that it was ineffective and that it would lead to a rise in inflation. Others argued that it was necessary to stimulate the economy and that it would not lead to a rise in inflation.

Operation Twist was the first time that the Federal Reserve had used a large-scale asset purchase program to target long-term interest rates. The Federal Reserve has used similar programs since Operation Twist, including Quantitative Easing (QE) and Operation Twist 2.0.