(Image Source: The Guardian)

BY MIKKEL NOEL LANZKY

ANCHOR ANA COMPAIN-ROMERO

You're watching multisource business video news analysis from Newsy.


Federal Reserve Chairman Ben Bernanke announced Wednesday a new plan to stimulate the economy. The Fed will sell 400 billion dollars of short-term Treasury bonds and buy long-term bonds instead.
 
The Fed’s move has received lukewarm response.
On her blog, BBC Economics Editor Stephanie Flanders conveys the mood among analysts:

“Will it work? That's a subject for lively debate - in and outside of the Fed. The consensus appears to be that it is unlikely to do a lot of harm. But with long-term interest rates already extraordinarily low, and many US corporates already flush with cash that they are not investing, many will question whether it can do a great deal of good for the real economy.”

But Investment banker Peter Boockvar disagrees that it won’t harm the economy, telling CNBC the Fed is moving in the wrong direction:
 
“I don’t know if it’s delusion on the part of the Fed, or hope, or desperation, or what. But it’s the exact opposite of what this economy needs. I think more stimulus from the Fed is actually anti-stimulus and doing nothing is actually a form of stimulus, in my opinion, because we create some certainty and it would back the Fed off from the constant manipulation and distortion of the marketplace.”
 
The Fed’s plan is modeled on a similar move used in the 1960s called ‘Operation Twist’ that tried to push investors toward riskier investments by limiting the supply of safe long-term bonds.

Canadian newspaper The Globe and Mail summed bankers’ and analysts’ reactions in the headline -- “Thanks for trying, but...”
It quotes economic analyst Ian Shepherdson, who notes:
 
“We expect the Fed’s actions to have very little visible effect on the economy, because the level of interest rates and the shape of the curve are not the key constraints on growth. Mr. Bernanke wants to be seen to be doing something, but his hand is not on the fiscal policy lever.”
 
To keep mortgages low, the Fed also announced it will reinvest the principal payments from its large holdings of mortgage-backed securities back into mortgages.
According to associate editor at the Atlantic, Daniel Indiviglio, this part of the Fed plan might be more impactful.

“Previously, [the Fed] was reinvesting its maturing mortgage securities in new Treasuries. By instead targeting agency mortgage securities, it will more directly push down mortgage interest rates. […] This effort could actually outweigh Operation Twist.”
 
The Atlantic reports that the Dow Jones Industrial index fell 80 points after the news and 280 on the day.

Transcript by Newsy.