What is 'Operation Twist?' A Q&A on US Fed program

Recent signs that the U.S. economy is sputtering have raised expectations among economists and investors that the Federal Reserve will take new steps next week to boost growth.

On Thursday, the Labor Department said more people filed for unemployment benefits last week. That suggests that June could be the fourth straight month of weak hiring. Meanwhile, inflation is mild, giving the Fed more leeway to act. The Fed meets on June 19-20.

Many analysts say if Fed policymakers do announce anything that the most likely step would be to extend a program called "Operation Twist."

Q. What is "Operation Twist?"

A. It is an effort by the Fed to sell $400 billion of the Treasury securities that it owns that mature in less than three years, and replace them with longer-term bonds that mature in six to 30 years. At the same time, the Fed is reinvesting the proceeds from its mortgage-backed securities that mature into new ones.

Q. What is the goal?

A. By purchasing longer-term Treasurys, the Fed's intention has been to push down longer-term interest rates and encourage more borrowing and spending. Lower rates could also encourage more investors to purchase stocks instead because they will see less return on their investment in Treasury bonds. And by reinvesting proceeds into new mortgage-backed securities, the Fed supports the housing market. Without those purchases, banks might issue fewer mortgages.

Q. When did it start?

A. Operation Twist was announced in September and is scheduled to finish by the end of June.

Q. Where does the name come from?

A. The Fed took similar steps in 1961, soon after the inauguration of President John F. Kennedy. It first called the program Operation Nudge, because it was intended to nudge long-term interest rates lower. But at the time, Chubby Checker's record "The Twist" was popular, hitting the No. 1 spot in late 1960, and the name "Operation Twist" stuck instead.