"Despite the discussion of whether QE3 will follow, for all intents and purposes, QE3 has already begun with yesterday’s shift. While the Fed has been careful to frame the latest shift as a “twist” that leaves its balance sheet neutral, as we have described before the policy is economically more or less equivalent to outright asset purchases. This is because the decision to sell short-dated securities in exchange for bank reserves – the additional transaction relative to the prior purchase program – is largely irrelevant given that the two are very close substitutes when interest rates at the front end of the treasury curve are close to zero (the US 3-year yield is only about 35bp). So yesterday’s policy announcement is not materially different in economic terms from an announcement to buy $400bn of longer-dated USTs through “printing money”. And in fact, given the tilt towards longer durations, the size of purchases is not meaningfully different from QE2."