President Bush signs the Pension Protection Act in August, 2006.
President Bush signs the Pension Protection Act in August, 2006. - 
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Steve Chiotakis: The Federal Reserve starts another two day meeting today, sorting through a number of proposals to give a jolt to the economy here. One option: lowering long-term interest rates, helping home buyers and home owners. But that could also hurt long-term investors.

Marketplace's Nancy Marshall Genzer now on how the Fed will try to dance around the idea.

Nancy Marshall Genzer: The Fed is considering this scenario: Replace some of its short-term bonds with long-term bonds. That would reshape the Fed's portfolio. The Fed tried this once before, during the '60s, when everybody was doing this:

The Fed's maneuver became known as Operation Twist. The idea was: Drive up demand for long-term bonds -- the higher the demand, the lower the interest rate the government has to pay. Other long-term interest rates, like mortgages, tend to fall, too.

That's good news for home buyers and businesses trying to borrow money. But the twist would be very bad news for pension funds, which tend to hold long-term bonds. Returns on those investments would spiral down as interest rates fell.

Brad Houle: I guess it is a story about unintended consequences.

Brad Houle is a portfolio manager with Davidson Investment Advisors. Those consequences he mentioned? Well, corporations with pension plans have to keep a certain amount of money in them. If the plans lost money, corporations would have to divert profits into the plans.

Alan Glickstein is a senior retirement consultant with Towers Watson.

Alan Glickstein: A lot of that extra money that's going to go in over the next couple of years is not going to be able to be reclaimed. It'll sort of be trapped in the plan.

And can't be used to create jobs or buy new equipment. Public pension plans for state and local government workers would have an even harder time. It would be tough for cities and states to raise taxes now, to cover losses in their pension plans.

In Washington, I'm Nancy Marshall Genzer for Marketplace.