Will the Fed Channel Chubby Checker?

Can the Federal Reserve save the economy and the stock market by doing the
twist? Mondays early rally for the Dow showed hope still is bubbling among some
investors, even if it might not quite spring eternal. (The bounce largely faded
by the close.) Today, though, the nations central bank will announce the results
of its two-day policy meeting in Washington and the hopers are looking for
Chairman Ben Bernanke to spin a dusty vinyl platter from the Federal Reserves
oldies collection. Back in the early 1960s, in an effort to stimulate a sluggish
economy, the Fed working hand-in-glove with the Kennedy administrations
Treasury Department instituted Operation Twist. This maneuver called for the
central bank to buy long-term Treasury bonds and simultaneously sell government
paper with shorter maturities. The goal: Drive down long-term borrowing costs
for homebuyers and businesses. Lets assume the Fed decides to twist the yield
curve again. Will Chubby Checkers old tune get the U.S. economy jiving again and
help us steer clear of a double-dip recession? Maybe, in the same sense that
each of Bernankes two previous quantitative-easing programs gave business
activity a brief, artificial boost. But lets face it. By almost any measure
(except corporate profits), the economic recovery since 2009 has been one of the
weakest on record. While businesses have done a fantastic job of adapting to
survive this adverse climate, the employment outlook continues to be dismal. As
long as that remains true, stocks will be on shaky ground. Dazzling rallies will
give way to sudden, shocking plunges (like that of early August). The current
run-up, dating from the Aug. 8 closing low at 1,119 on the S&P 500, has reached
a tender stage. Twice in recent sessions (Friday and again Monday), the S&P
banged into overhead resistance at 1,220. This is worrisome, because in late
August and early September, the S&P was able to climb 10 points higher (to
1,230) before hitting a short-term ceiling. The Fed will need to pull a
blue-ribbon bunny out of the hat today. Otherwise, well probably head back down
for a test of the August index lows during the first half of October.