A growing number of independent observers consider that the Fed should use non-traditional monetary policy tools. Ray Dalio, the founder of the world's biggest hedge fund Bridgewater Associates, supports such changes. The expert said the next big move by the Federal Reserve would be to loosen US monetary policy, not tighten it, in order to avoid another economic slowdown. "Clearly, the Fed has created expectations that it will tighten in either June or September and such expectations are difficult to deviate from. We don’t know – nor does the Fed know – exactly how much tightening will knock over the apple cart,” he said. Dominic Konstam, global head of interest rates research at Deutsche Bank AG, thinks the same. He believes that a different kind of unconventional stimulus might be in the cards: Twist 2.0. Last time, this tool was used in the wake of the financial crisis in 2011 following two rounds of quantitative easing. At that time, the regulator redeemed long-term bonds on a massive scale and sold a similar volume of short-term treasury bonds. Konstam also notes that "unlike quantitative easing, Twist 2.0 does not result in an expansion of the Fed's balance sheet." Moreover, such exchange of debt helps to push down mortgage rates' growth for households and to reduce long-term borrowing costs for companies. It also nudges investors into riskier assets, thereby theoretically stimulating the broader economy.
