Essay on The current policies of the Fed

The current policies of the Fed affect consistently the situation in the financial market. The Fed attempts to improve the situation in the financial market and revive it. In this regard, L.C. McCommick, in her article “Money Market Investors May Get Relief from Fed’s Operation Twist”, refers to one of the recent efforts of the Fed to revive the financial market and national economy at large was undertaken through the Operation Twist, which was the stimulus effort, in terms of which the Fed has started to sell short-term debt.

In fact, this decision aimed at the stimulation of the financial market and to attract funds to the Fed through selling short-term debts.

In such a way, the Fed attempted to accelerate the restoration of the financial market of the US. This decision met the growing demand on short-term government debt instruments. Therefore, the decision was reasonable to meet the demand of the market. The six-week period after the start of short-term debt sells showed a considerable growth in the financial market that proves the positive effect of the decision taken by the Fed.

However, the seeming improvement in the financial market and in the position of the Treasury may be deceitful because experts warn against the possible shortage of money and instruments to increase revenues of Treasury (McCommick, 2011). To put it more precisely, they argue that when short-term securities mature the Fed will not have any paper to roll over at the Treasury auctions. Therefore, the Treasury will receive less money than it otherwise would (McCommick, 2011).

Therefore, the stimulus effort undertaken by the Fed may have positive effects in a short-run perspective and negative effects in a long-run perspective.