The market believes the Fed will announce Operation Twist, which means they will sell some of the shorter-term Treasury bonds (at a profit) and buy some longer-term Treasuries.  In other words, the average maturity will increase.  This is expected to lower long-term interest rates, which should make business investment somewhat more attractive, as well as lower the home mortgage rates even more.

Frankly, since the Fed is one of the few functioning institutions left in this country, there is a need to do something.  When I was in Officer Candidate School, they taught us the importance of doing something, anything really, when your men come under fire.  The Fed is doing this, unfortunately.  Operation Twist is the equivalent of yelling “hit the dirt!”

In addition, they may stop paying interest on the reserves maintained at the Fed by member banks.  By increasing the need of banks for income, it is hoped they might actually make a loan again.

Of course, they will probably “jawbone” the market, by promising to keep monetary policy loose as long as it takes to reduce unemployment, one of the Fed’s dual mandates, along with preventing inflation.

Once the market realizes the hollowness of the Fed’s announcement, I expect downward pressure on stock prices . . . darn it!