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Why We Got Operation Twist

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    RBS senior U.S. economist Michelle Girard weighs in on the Fed's decision to extend Operation Twist.

  • Duration 4:21
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-- -- -- amid growing signs of an economic slowdown in the US the Federal Reserve decides it will extend its Operation Twist program but will its effort to lower borrowing costs.

Reignite the economy joining us now to talk more on this -- Our senior economist Michelle Girard Michelle welcome back to the shows I was an -- here Chile -- in our favorite economist.

So wanna get your take on all of these things.

Curious to start with -- -- take on the statement specifically the line where Bernanke said economic growth will pick up very gradually and as someone pointed out.

The last the April statement said just pick up gradually is that is significant downgrade.

In -- outlook it -- downgrade and it kind of peanuts -- that sentence as well they change the -- -- look at times the unemployment rate -- -- it would now come down you know it's -- only slowly I think -- -- exactly as opposed to gradually -- They do have an expectation that the second half is going to be weaker and that the progress toward their mandates.

On its intent that the labor market is going to be slower it doesn't.

That they have to act now but it it takes them one step closer because as.

The Fed is -- over and over get it they're not making that progress at the end of -- rate isn't an -- coming down that's the trigger for QE3.

Is the extension of Operation Twist the right calling your -- all I think it's just as.

It's taking action did you know to take action I don't think anybody thinks that it's gonna have a real positive -- that it -- the Fed has suggested that it went.

Help to keep financial conditions a little bit more comedy bit but we are we have.

You know interest rates long term interest rates at near record low levels that's not the -- economy faces I don't think that that.

In this environment wanted to take -- chance to disappoint the markets that we're really looking for at least.

You know -- -- it's at their hands at least to some extent with something and so I think that's why we got Operation Twist.

Yeah aren't saying earlier that -- like Ben Bernanke be a little -- and that's what we are all laughing at the beginning right.

We're kind of teasing and all seriousness would you like to see him do something more have they done what they can't enough is enough.

Well you know they they have done.

All that they can really do I mean this hasn't even a domestic problem anymore now we're talking about that the downside risks associated.

From the Euro zone crisis which isn't anything that the Fed can really control we do have dollar swap lines in place I mean they've done.

Tell the steps that they really need to I think but they can't at the same time sit back and do nothing -- downside risk to the economy.

Are are in fact increasing and they need -- sound like they are really am willing to do something if even if it's only marginally marginally positive I think that's what that the Fed is trying to navigate right now but who can this possibly help at this point I mean everybody who could refinance can't.

Eight you know people who couldn't afford the White House they don't have the -- -- -- this doesn't help them businesses are taking out loans because they don't know what the economy's gonna look like.

Who this.

-- know -- continues to do is push people out the risk her you know when you.

When you -- right rates alone you know it pushes people into the equity market -- -- it forces people -- Perhaps take on more risk than they would otherwise and in that sense it.

Provides some support for that you know for the broader financial markets I think that's -- -- the only thing that you can really.

Point -- -- and that I think is had diminishing returns as the bad that it -- What about the statement here as we -- the 2:15 eastern time slot we're expecting Bernanke I'm watching the market the Dow's climb it's up 21 points is we mentioned.

-- sold off.

Sold off I'm sorry about a hundred -- having that I say -- thank you very much.

I -- anyway Michelle said he could just comment on kind of where we are in the process right -- I teasing and does that I think the statement and action that we have so far with the -- that they could do to keep the markets are being terribly disappointed and I think because ever some downgrades as you we talked about in a statement.

They've left the door open to do more -- that's -- the market is taking.

You know some -- is that you know there's still this.

Quite possible that we'll see action at the July meeting at the September meeting and so because -- -- the fact you know the Fed is inch closer to that outcome.

At there is perhaps some positive.

You know pay -- this but again.

I believe got today is just have -- minimum of what the market was pricing and OK so really quickly Michelle so -- his comments.

Can Bernanke just -- confidence to say hey we have the tools and we're standing ready we will.

Institute a formal QE3 if needed.

I think that's what is good idea same kind of message that we see out -- can promise anything more at this point latency mode just like everybody out OK it great chat thanks for the update things.

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