Goldman Sachs (NYSE:GS) economists expect the Federal Reserve’s Operation Twist to produce $300 billion-$400 billion worth of Fed purchases of 10-year-equivalent debt. The finance of these purchases will come from the sale of $300 billion of Treasury notes and bonds (NYSE:TLT) due 2014 or before.
Goldman (NYSE:GS) also thinks the Fed will cut rates on excess bank reserves. “We expect the Fed to sell some portion of these holdings — perhaps $300 billion or so — and purchase securities with 7 to 30 years remaining maturity,” Goldman economists say.
This is in contrast to Nomura who doesn’t expect the FOMC to cut rates on excess bank reserves tomorrow. A note by Nomura states:
“We think it is more likely than not that the FOMC will give more guidance on the federal fund rates remaining low ‘at least through mid-2013.’ We do not expect a reduction in interest rates on excess reserves (IOER) to be announced. Lengthening of the average maturity structure of the Fed’s holdings of Treasuries. We expect two dissents.”
The Federal Open Market Committee of the central bank on Tuesday starts a two-day meeting, with an interest-rate decision set for Wednesday at 2:15 p.m. Eastern.