The Fed should be quite happy with the impact of the Maturity Extension Program (Twist). The central bank has taken a considerable amount of duration out of the treasury market. This happened just as demand for treasuries rose due to escalating problems in the Eurozone as well as negative rates in the "safer" European nations. This combination has created the most accommodative long-term rate environment in recent US history. The 10-year zero coupon real yield is at record low of negative 82bp.
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US 10y zero coupon real yield |
Many would argue that this extraordinarily accommodative policy is not feeding through to the economy. But there is very little the Fed could do about that other than possibly shifting to MBS "Twist" (which is a distinct possibility down the road). Increasing bank reserves via QE3 will NOT make conditions any more accommodative than they already are. That's why Twist, and later sterilized purchases (which may at some point involve nontraditional sterilization techniques such as issuing Federal Reserve bills), will continue to be the primary tool for easing.