As expected, the Fed announced an Operation Twist of about $400 billion. That amounts to the Fed selling $45 billion in short-term bonds and buying the same amount in longer-term Treasury bonds every month for the next nine months or so.
The Fed also introduced a somewhat more surprising measure, though. It will begin reinvesting any proceeds from the mortgage securities it owns into more mortgage-backed securities. Previously, it had been buying more Treasuries with funds from maturing MBSs. Its holdings of private-label MBSs and GSE debt over the course of the recession have looked like this, from the Cleveland Fed:
Instead of continuing to decline, they’ll remain at their current level to stimulate the mortgage market. As David Indiviglio notes, this policy could end up being more significant, in dollar terms, than Operation Twist.