Like they did last summer: Fed may ‘Twist’ again

WASHINGTON, Wed Jun 13, 2012 – It has become a familiar choreography for the Federal Reserve: Officials ease monetary policy, and the economy improves. Then conditions weaken, reviving debate about the need for further stimulus.

The central bank again finds itself at that difficult juncture heading into a meeting next week. As Europe’s banking crisis intensifies and the labor market sputters, the Fed appears increasingly likely to offer more monetary stimulus – despite political opposition, internal reticence and concerns about whether it will be effective.

Given an outlook that is weak but not recessionary, the Fed could opt for the relatively low-hanging fruit of extending “Operation Twist,” its effort to drive down long-term borrowing costs by selling short-term securities to buy longer-term ones.

Another relatively costless tool it could employ would be to push official guidance for when overnight interest rates are likely to rise, now set at late 2014, even further into the future.

Many believe that with government bond yields already near record lows as investors flock to safety, an extension of Twist, which is due to expire at the end of the month, or even outright bond purchases, might not do much good.

Atlanta Federal Reserve Bank President Dennis Lockhart, who has argued that the bar for further monetary support remains high, captured the sentiment while speaking to reporters this week.

“In some respects the market has been doing the job for the Federal Reserve of suppressing the longer-term rates,” he said.

But a growing chorus of economists, both within and outside the Fed, say the central bank cannot sit idly by with the U.S. unemployment rate still at an elevated 8.2 percent – and showing few hints of falling.

They argue for an extension of Twist if not a further expansion of the Fed’s balance sheet through bond purchases, a policy known as quantitative easing.

“It’s not about lowering the long-term rate it’s about getting people to believe in growth,” said Michael Dueker, a former St. Louis Fed economist now at Russell Investments.

Part of the idea is to get businesses to spend some of the cash they are sitting on by giving them confidence in the recovery. That in turn should bolster employment, and make Americans more comfortable about their finances.

“It’s a signal from the Fed that they’re not going to let the economy stagnate,” said Dueker.

The Fed, which meets on June 19-20, has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in securities in two separate bouts of quantitative easing, or QE.

It then launched a $400 billion Operation Twist. The Bank for International Settlements estimated in March the policy would have a similar effect on 10-year Treasury yields as the second round of QE, potentially lowering them by about 0.85 percentage point.

Rates on the benchmark 10-year Treasury slumped to a record low of 1.442 percent on June 1, after the weak May payrolls data. Mortgage rates are also at their lowest ever, with a 30-year fixed mortgage available for less than 4 percent.

Aging Microsoft lures 1,500 young tech idealists for summer

SEATTLE, Tue Jun 12, 2012 – The young interns, some of the nation’s best and brightest in technology, business and design, had plenty of enthusiastic words to describe their summer employer.

Fun. Cool. Special. A giant start-up. Revolutionizing the world. Facebook, perhaps? Or Twitter? Or Google?

Try Microsoft Corp: the company once derided as the “death star” of the technology business and lately thought of not so much as dangerous, but merely irrelevant, bureaucratic and dull.

“Microsoft feels cool again,” said 22-year-old Gbenga Badipe, an electrical engineering student at Rice University, one of 1,500 interns spending 12 weeks at the company’s leafy campus this summer. “Microsoft products touch almost every area of technology, and everything they do is starting to work together.”

Microsoft’s keen new interns already think their competitors’ days are numbered, branding Google and Facebook as “creepy” because of their aggressive stance on privacy and heavy reliance on advertising.

“What kind of business model is that, shoving ads in peoples’ faces?” said one Microsoft intern, who asked not to be named.

A recent poll by careers site Glassdoor put Google as the most desirable place to intern, followed closely by Microsoft. They are also the best paid, averaging over $6,000 a month.

Microsoft is “revolutionizing the world,” said Juan Llanes, 25, a computer science and finance major at Georgia Tech, who is also interning in Redmond, Washington this summer. Llanes grew up revering Microsoft during his childhood in Cuba, where computers were effectively banned.

Microsoft executives say the youthful enthusiasm evokes the company’s heyday in the 1990s, when Bill Gates took his revolutionary startup from being International Business Machine Corp’s junior partner to the United States’ most valuable company.

“I went to work at Microsoft because I believed,” said John Ludwig, a senior executive behind the creation of Internet Explorer and Windows 95. “It wasn’t about money. I believed in the idea of getting computers in the hands of everybody.”