Fed's next move? 'Operation Twist', says Mirae Asset Sec

For today, markets are looking towards the Federal Open Market Committee meet and its outcome to determine its next move. According to Bill Belchere, global economist at Mirae Asset Securities, the Fed is going to announce what is now being known as Operation Twist. "The Fed is going to try and push down the rates at the long end of the yield curve. But for this to be effective, they will also have to cut the deposit rate that they provide to the banks," he said exclusively to CNBC-TV18.

Belchere believes that this move will encourage banks to invest in risk assets which will bring in the necessary liquidity into the system. However, he adds that it is the fiscal policy that is the core problem. "Monetary policy is just a salve trying to get us through another quarter or two without a disaster befalling us." Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video. Q: What is the minimum that Mirae is expecting from the Fed and are asset markets already priced to that expectation? A: What we are expecting from the Fed this evening or tomorrow will be an Operation Twist that is going at the long-end of the yield curve trying to push down those rates. But for that to be effective, they will also have to cut the deposit rate that they provide to the banks who put their reserves with the Fed because only then will they be encouraged to push money out into the system. It's not enough to lower the long end and hope that it will encourage banks to put more money into risk assets. I think you also have to take their earning power away from the short end and that might be the surprise to the market and give the market a bit of a boost. Q: If that happens, how would you expect say the euro-dollar to behave and perhaps other asset classes? Where would you tank up ahead of it, if you were a global fund manager? A: If I was a global fund manager I think I would be cashed up right at the moment. I think this is just very short-term, I don't think monetary policy is really the problem here, its fiscal policy. We need anchors in the US and in the EU to provide us with some sort of sense and guidance to help us make firmer decisions about the future path of fiscal balances, about tax policy etc. That