U.S. Federal Reserve officials are weighing a more open-ended, smaller-scale bond buying program compared with 2009, when they announced massive bond purchases with a finite end, The Wall Street Journal reported.
The Fed hasn't yet decided to step up its bond purchases, let alone agree on an approach, the newspaper reported on its website.
A call on whether to buy more bonds depends on incoming data about economic growth and inflation, the paper said, adding that if the economy picks up steam, officials might decide no action is needed.
In March 2009, the Fed said it would buy $1.7 trillion worth of Treasury and mortgage-backed securities over a six- to nine-month period.
Under the alternative approach gaining favor inside the Fed, it would announce purchases of a much smaller amount for some brief period and leave open the question of whether it would do more, a decision that would turn on how the economy is doing, the Journal said.
The Journal report comes at a time when many analysts expect the U.S. central bank to relaunch large-scale purchases of Treasury securities — perhaps as soon as its next meeting in November.
After cutting the overnight federal funds rate to near zero in December 2008, the Fed launched an asset-buying program in a further effort to lower borrowing costs and help the economy.
In the end, it bought $1.7 trillion in longer-term U.S. government debt and mortgage-related bonds.
The report comes just days after Paul Volcker, special adviser to U.S. President Barack Obama, said that while the Federal Reserve's purchases of long-term Treasuries are "understandable," the U.S. central bank must be careful not to set the stage for future inflation.
The former Federal Reserve chairman, known for slaying inflation in the 1980s by hiking interest rates well into the double digits, said he is not worried about deflation, and that he believes the country is on the road to price stability.
"We are in a situation now where we've got a sluggish economy, a lot of excess resources, a lot of unemployment — this is not an atmosphere that's inclined to produce inflation," he told reporters on the sidelines of a banking conference at the Chicago Fed.
"I think we ought to be sure that we don't take actions that down the road might lead to an inflationary situation."
Volcker's super-high interest rate policy earned him vociferous criticism from some quarters, a token of which Chicago Fed President Charles Evans held aloft as he introduced Volcker — a two-by-four wood block famously sent to the Fed chairman by angry homebuilders who viewed high rates as bad for business.
Fed Chairman Ben Bernanke is taking an exact opposite approach against a vastly different backdrop, using super low rates and asset purchases in what some view as an attempt to push up uncomfortably low inflation.
The Fed lowered its target rate for overnight lending between banks to near zero in December 2008 to help pull the nation from its deepest recession since the 1930s, and has since bought about $1.7 trillion in long-term Treasuries and mortgage-backed securities to further spur the economy.
But with unemployment at a lofty 9.6 percent and amid signs that the economic recovery may be faltering, Fed officials are now debating whether to embark on a new round of monetary easing through the purchases of more Treasuries.
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