Operation Twist is Working!

Last fall Ben Bernanke and the Fed set out to reduce the yields on long term Treasury bonds, in the hope that this would spur the recovery.  The low yields are here, and I’m looking for the recovery to start any day now:

NEW YORK (MarketWatch) — Treasury prices jumped on Friday, pushing yields on major benchmark indexes down sharply to record lows after a report showed U.S. payrolls rose 69,000 in May, far fewer than analysts expected.

Yields on 10-year notes (ICAP.SD:10_YEAR) , which move inversely to prices, fell 10 basis points to 1.46% — setting a new low and from 1.53% prior to the report.

A basis point is one one-hundredth of a percentage point.

Thirty-year bond yields decreased 12 basis points (ICAP.SD:30_YEAR)  to 2.52% — setting a record low.

Yields on 5-year notes (ICAP.SD:5_YEAR) fell 6 basis points to 0.60%, also the lowest level ever.

The Labor Department report also showed the number of jobs added in the prior two months were revised lower, and the unemployment rate unexpectedly edged up.

Seriously, can we finally stop talking about interest rates and start talking about what really matters?  If you don’t like the term ‘NGDP’ then call it AD.  But please, no more discussion of the need to cut interest rates.  And can we also put Nick Rowe’s upward sloping IS curve in the textbooks now?

And since I’ve been needling Paul Krugman about small issues in recent posts, how about a big round of applause for Dr. Gloom; the only major nationally-known pundit who’s been 100% right about the AD shortfall from the beginning.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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