WASHINGTON - The following is an excerpt from Federal Reserve Chairman Ben Bernanke's press conference Wednesday.
QUESTION: Interest rates are already historically low. How much more help can an extension of Operation Twist do in order to lower interest rates?
BERNANKE: Interest rates are low and are being pushed down by safe haven assets and other factors. That being said I think we can lower interest rates more, but beyond that Operation Twist and asset purchases work by acquiring securities in the market and bringing them onto the Fed's balance sheet, inducing investors to move to substantive securities. For example, an investor who sells treasury securities to the Fed may buy corporate bonds instead. The effect will be lowering corporate bond rates and corporate spreads. Or a bank, having sold treasury securities, may decide to make a loan instead. So it is not just the effect on the long-term interest rate, but there are broader effects that feed through other asset prices, other interest rates and other spreads, providing a broader easing in financial conditions which is supportive to the economy.
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