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Fed's 'Operation Twist' and Stocks: A History Lesson

If the Federal Reservedecides to execute a modern-day "Operation Twist" and push on longer-term interest rates, what could this mean for stocks?

The last time the Fed tried this type of operation was in 1961, during the Kennedy Administration. Originally called"Operation Nudge" by the Fed, opinions are mixed on its potential impact on rates and, by extension, stocks.

Fifty years later, investors exist in a much more global economy.

"These days the trading share of market transactions (as opposed to buy and hold for some period of time) is huge, much more so than in the 1960s," says Dr. Catherine Mann, Professor of Global Finance at Brandeis University and a Visiting Scholar at the Federal Reserve Bank of Boston.

"This implies that any reaction of the stock market to 'twist' is likely to be on news, not on the basis of any likely improvement in economic prospects. Therefore although the market might bump up, its rise will not be sustained."

Here's a look at what history says about the original "Operation Twist" and its impact on stocks and bonds:

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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    Senior Producer at CNBC's Breaking News Desk.

  • Dominic Chu is a markets reporter for CNBC.

  • Evelyn Cheng

    Evelyn Cheng is a markets writer for CNBC.

  • Sara Eisen

    Sara Eisen is a correspondent for CNBC, focusing on currencies and the global consumer.

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