The US Treasury would accommodate a possible Federal Reserve stimulus to drive down long-term interest rates, according to a person familiar with the Treasury’s thinking.
The Treasury would play a crucial role if the Fed decided to launch “Operation Twist”, where the central bank would buy more longer-term Treasury securities to drive down long-term interest rates by reducing the amount of such debt available to other investors.
But its effectiveness would depend on how the Treasury reacted. If it pushed the other way, and took advantage of the Fed’s buying to sell more long-dated debt, then it could minimise the effect on interest rates.
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