Fed Tries to Stimulate Economy Despite Republicans' Mean Letter

The Federal Reserve's Open Market Committee responded to congressional Republicans' unprecedented letter warning that "further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy" by, well, intervening further anyway! Slightly further. Helpfully further? Eh, probably not.

Instead of simply buying hundreds of billions of dollars in securities, as it did with the first two rounds of quantitative easing, the Fed announced today that it would... buy hundreds of billions of dollars in long-term securities while selling off an equal amount in short-term securities. From the Fed statement:

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The idea is to "twist" the yield curve on Treasuries to a flatter position in order to spur long-term investment and refinancing. Here's a graph of the yield curve twisting, already! What a world.

Expect to hear Republican presidential candidates respond angrily to this — although not as badly as they would have if the Fed had expanded its balance sheet — given their sudden obsession with keeping money tight, which may or may not have something to do with keeping the economy shitty heading into an election year against an incumbent Democratic president.

Will this move help the economy much? We're not making up our minds until Sarah Palin explains everything in a Facebook note.

[Image via AP]