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Fed Likely to Have 'Shout' to Go With 'Twist': Kroszner

Along with announcing the much-anticipated "Operation Twist," the Federal Reserve also is likely to use language to assure markets that the central bank plans an active hand in managing the economy, former Fed Governor Randy Kroszner said.

Randall S. Kroszner
CNBC.com
Randall S. Kroszner

Though he thinks investors are counting for a bit too much from the Fed , Kroszner said the organization's Open Markets Committee will deliver at least some help.

"They're likely to do some of this so-called 'Operation Twist,'" he said in a CNBC interview. "But a lot of it is going to be 'shout.' That is, just talking about where they may be going, just communication rather than concrete moves."

Operation Twist is a program first implemented 50 years ago in which the central bank sells short-term and buys long-term debt. The goal is to compress the difference between in yields between debt—flattening the yield curve —in order to drive down long-term borrowing costs, which already are at or near record lows.

Wall Street has spent the past several weeks talking up the possibility of Operation Twist, so any failure to deliver could impact markets.

Among the "shout" options the Fed would have center on setting a specific inflation target, raising the possibility of decreasing the interest it pays on bank deposits, and continuing its easy monetary policies.

Kroszner, who served on the Fed from 2006-2009 and is now a professor of economics at the University of Chicago Booth School of Business, cautioned that the intensity of the talk could be premature.

"The market may be a little ahead of themselves (thinking) that they're going to get everything today," he said. "There's a lot of tension around the table where to go. What the chairman's going to try to do is build as strong a consensus as he can for what he thinks needs to be done right now."