The Federal Reserve is again finding itself in a tight spot, as Europe's banking crisis strengthens and the labor market sputters. Given the circumstances, the Federal Reserve might extend Operation Twist, to drive down long-term borrowing costs by selling short-term securities to buy longer-term ones.
While Operation Twist is not an expansion of the Federal Reserve's balance sheet, it will get businesses gain confidence in the recovery and spend some of the money they are sitting on. Consequently, employment will rise and Americans will be more comfortable about their finances. Michael Dueker, Former St. Louis Fed Economist, explains that it is a signal from the Federal Reserve that they are not going to let the economy stagnate.