A new effort by the Federal Reserve to boost the economy was met with skepticism, sending stocks down more than 3%. The Fed's policy, "Operation Twist," involves selling $400 billion in short-term Treasuries in exchange for long-term Treasuries. The goal is to drive long-term rates down, making it cheaper for businesses and consumers to borrow. The central bank was bleakly enthusiastic in its statement, saying, "there are significant downside risks to the economic outlook, including strains in global financial markets."
The policy, which will remain in place until mid-2012, has succeeded at lowering long-term rates, but the economy has yet to see a significant boost from the effort.
There's good reason to be both optimistic and cautious as we ring in the New Year.
