Tags: Bullard | Fed | Buy | More | US | Treasuries

Bullard: Fed May Need to Buy More US Treasuries

Thursday, 19 Aug 2010 02:38 PM


The Federal Reserve may need to ramp up its purchases of U.S. Treasury debt if price levels in the U.S. economy continue to show signs of softening, St. Louis Fed President James Bullard said on Thursday.

Bullard said such actions were not yet warranted at the moment, given expectations for a continued economic expansion.

But he added that, if further signs of easing price pressures were to emerge, the central bank should not be shy about using the remaining tools in its policy arsenal.

"Should economic developments suggest increased disinflation risk, purchases of Treasury securities in excess of those required to keep the size of the balance sheet constant may be warranted," he said in prepared remarks.

In a significant policy shift last week, the Fed announced it would begin using the proceeds from maturing mortgage securities in its portfolio to buy Treasury notes, an effort to prevent monetary conditions from tightening.

The move was aimed at sustaining an economic recovery that looks increasingly troubled, with persistently high unemployment and a battered housing market denting consumer confidence and inhibiting business investment.

Bullard suggested this was enough for now, taking comfort in inflation expectations that he described as low but manageable. Any additional Treasury buying should be undertaken in a measured, deliberate manner, he said, commensurate with the magnitude of the deflation threat.

"Large, sudden purchases rarely are optimal," he said. "'Shock and awe' is almost never a good way to proceed."

In response to the worst financial crisis since the Great Depression, the Fed not only slashed interest rates close to zero but also bought over $1.5 trillion in mortgage and Treasury securities.

Following a deep recession, the U.S. economy has been growing for four straight quarters. However, the expansion was already losing steam in the second quarter, and many fear the second half of the year will be even more lackluster.

Against that backdrop, core inflation measures, which exclude volatile food and energy prices and are therefore favored by Fed officials, remain stuck at their lowest levels in over 40 years.

Once seen as an inflation hawk, Bullard rattled financial markets last month when he flagged a growing risk of deflation, a damaging vicious cycle of falling prices and wages that has plagued Japan for about two decades.

At the time, Bullard argued in an academic paper that the Fed's commitment to keeping interest rates at very low levels for an extended period might actually increase rather than abate the threat of deflation if it leads consumers and businesses to anticipate lower prices in future.

Bullard said Europe's debt crisis, which dominated attention in financial markets during spring, appeared to have receded.

© 2015 Thomson/Reuters. All rights reserved.

Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

FBI Arrests Russian Spy Posing as Banker in NYC

Monday, 26 Jan 2015 15:12 PM

FBI agents arrested an alleged Russian spy in New York City Monday on charges of trying to collect economic intelligence . . .

SF Archbishop to Pelosi: 'No Catholic Can Dissent' on Abortion

Monday, 26 Jan 2015 14:46 PM

The San Francisco archbishop says there is no debate in the Catholic Church about life beginning at conception and there . . .

Gingrich: We Are Losing War Against Radical Islam

Monday, 26 Jan 2015 14:23 PM

Former House Speaker Newt Gingrich warned that the United States is losing the war with radical Islamists, and called on . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved