Tags: Pimco | QE2 | fed | easing | Needed | Avoid | Deflation

Pimco's Clarida: QE2 Was Needed to Avoid Deflation

Wednesday, 17 Nov 2010 03:33 PM

The Federal Reserve’s resumption of government bond purchases was probably necessary to keep the economic recovery from faltering and to avoid deflation, Pacific Investment Management Co.’s Richard Clarida said.

“The Fed is doing what you’d expect the Fed to do with it falling short on both of its mandates; inflation is low and unemployment is high,” Clarida, a strategic advisor for Pimco, said during a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. “I understand why the Fed did it; there are benefits as well as costs. The evidence shows that recoveries from recession that coincide with financial crisis are often very sluggish and disappointing.”

The Fed began buying $600 billion of Treasuries last week, expanding its record stimulus measures in an attempt to reduce 9.6 percent unemployment and keep inflation from slowing. It purchased $1.7 billion of securities under a program that ended in March. Policy makers bought $8.2 billion of government debt today as part of its so-called quantitative easing plan.

Consumer prices excluding food and fuel, the gauge followed by central bankers, increased 0.6 percent from October 2009, the smallest gain in year-over-year data going back to 1958, the Labor Department said today in Washington.

“To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities,” the Fed’s Open Market Committee said on Nov. 3 in a statement following their policy meeting in Washington. The central bank has kept its benchmark rate locked in a range of zero to 0.25 percent since December 2008.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.236 trillion of assets as of September from Newport Beach, California.

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The Federal Reserve s resumption of government bond purchases was probably necessary to keep the economic recovery from faltering and to avoid deflation, Pacific Investment Management Co. s Richard Clarida said. The Fed is doing what you d expect the Fed to do with it...
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