Stimulate The Economy, The Fed Moves Again.

The Federal Open Market Committee of the Federal Reserve has replaced the Treasury bonds with "selling short and buying long".

Reporter Molly faced with the weak American economy, and the Federal Reserve, which was almost "exhausted", was forced to move again.

After ending the two day instrument conference, the Fed announced in September 21st that the federal funds rate would remain unchanged in the 0~0.25% range, and decided to buy 400 billion US $6 to 30 years treasury bonds by the end of June 2012 and sell the same scale three year or shorter term treasury bonds over the same period.

The Fed will also conduct a routine review of the size and composition of its securities holdings, and is ready to make adjustments if appropriate.

When the decision was announced, the three major U.S. stock markets fell sharply on that day, while the US dollar index climbed to a 7 month high.

On the 22 day, Ding Zhijie, President of the school of finance, University of International Business and Economics, who interviewed this reporter, said the main purpose of the Fed's move is to lower the long-term interest rate to stimulate the US economy, but its effect may not be optimistic.

In fact, the US monetary policy has been inefficient or even ineffective in curing the economic ills of the United States.

In recent years, a number of US economic data are not performing well, and the European debt crisis is getting worse.

"The Fed's 21 day twist operation is actually a two-way operation."

Ding Zhijie said it would extend the average maturity of the Federal Reserve's portfolio by selling short-term securities and reinvesting the proceeds from long-term securities.

On the positive side, this move can further lower the long-term interest rate to stimulate the US economy.

In addition, the plan does not involve the expansion of the Federal Reserve's balance sheet, and only the reorganization of its portfolio. Therefore, it can avoid the criticism of the Federal Reserve's quantitative easing policy at home and abroad.

Ding Zhijie analysis, the 21 reason for the sharp decline in the US stock market is that the US bank rating has been downgraded and the market has become more pessimistic about the outlook for the US economy. The two is that the Fed has had more distortions than expected, but it has not introduced other markets that it hoped for earlier.

Regarding the US economy and inflation, the Fed said in the post meeting statement of the same day "old tune".

"The recovery of the US economy continues to maintain a slow pace."

The statement said that the recent economic data show that the overall labor market in the United States remains weak, and the unemployment rate remains high.

In addition, the Fed believes that inflation picked up earlier this year, reflecting the rise in prices of some imported goods and the disruption of supply chains.

Inflation has eased recently, as energy and some commodity prices have dropped from earlier highs.

In addition, longer-term inflation expectations remained stable.

Compared with the August monetary policy conference, the Fed's view of the economy and inflation prospects has not changed significantly.

After the meeting, the statement also showed that apart from 6 members voting for this resolution, 3 other Fed members objection to the statement and did not support more loose monetary policy.

There are different views on the effectiveness of the Fed's stimulus measures.

"For the Fed, it is better to do nothing than to stand by."

Some economists say this can at least indicate to the market that the Federal Reserve still has a "fighting" attitude in stimulating economic growth.

"There is a lot of doubt about the Fed's distortions," he said.

Ding Zhijie said that from the QE1 and QE2 launched before, it has not played a significant role in promoting the real economy.

Therefore, the effect of this measure may not be optimistic.

Ding Zhijie believes that the main problem of the US economy at present is that banks are reluctant to lend money and enterprises are unwilling to increase investment. The crux of the problem is that all sectors still have little confidence in US economic growth.

"These policies of the Federal Reserve can only play an indirect role in the real economy through improving the financial market," he said. Most of its effects may remain at the financial level only, but in terms of stimulating the economy, the Fed's policy has been inefficient or even ineffective.

If the US economy wants to move towards a healthy recovery, it needs structural adjustment.

On the 21 day, the Fed did not give clear guidelines on whether further stimulus measures would be taken in the future.

However, most market participants believe that although there are not many policy tools to choose on the road to stimulating the economy, the Fed can only push ahead.

Among them, reducing the excess reserve interest rate of commercial banks is an alternative tool with greater possibility.

Some economists point out that lowering the interest rate to 15 basis points may increase the downward pressure on the interest rates of 2 to 5 years, and offset the pressure of appreciation caused by the sale of such securities, which will make the Fed's current distorting operation better.

"Since August this year, the global stock market has been sharply oscillating, which makes the developed countries, including the United States, have adopted the strategy of extending the time of easing policy or increasing the flexibility."

Ding Zhijie said that similar measures such as the Fed's distorting operation would bring about a calm phase in the international market.

But the solution to the sovereign debt crisis in the future is a long-term process. In the process, it will cause turmoil and adjustment of policies, and the Federal Reserve will not be able to stay out.

Therefore, there is still possibility for the Federal Reserve to introduce further measures in the future.