Tags: Fed | Bonds | Economy | Henry | Kaufman

Fed Expected to Buy Even More Bonds to Boost Struggling Economy

Friday, 13 Aug 2010 07:26 AM

To support the slowing economy, the Federal Reserve will likely take further steps to ease policy beyond those it announced this week, including buying larger amounts of government securities, veteran Wall Street economist Henry Kaufman said.

Tuesday, the Federal Open Market Committee said it would reinvest principal payments from agency debt and agency mortgage-backed securities in longer-maturity Treasuries.

Asked whether this was enough to shore up the economy, Kaufman told Reuters it was a marginal easing step.

"I don't think this is the last. I think there will be other moves by the Fed," he said in a telephone interview.

Kaufman acquired the moniker "Dr. Doom" for making the right call on higher inflation and interest rates when he was chief economist with Salomon Brothers in the 1970s and 1980s. He is also known as an expert on the Fed, the U.S. central bank.

"I suspect that the Fed will, within time, purchase more longer-dated government securities" than is required by reinvesting the principal payments from agency debt and agency mortgage-backed securities in the Fed's portfolio, said Kaufman, who is president of financial consulting firm Henry Kaufman & Company, Inc in New York.

Another easing step the Fed might take would be to slash the interest on excess reserves which the Federal Reserve pays, he said.

The FOMC's action this week "is a delayed recognition of the slowdown in the economy," said Kaufman. "As a consequence the Fed has made another easing move to marginally help the economy or to underpin it," he said.

In the second quarter, U.S. gross domestic product growth slowed to 2.4 percent, from 3.7 percent in the first quarter.

Kaufman expects an extended period of lackluster growth.

"Over the next couple of years if we can generate anywhere around 2.5 percent we will be doing well," Kaufman said.

He said the odds of a U.S. recession are about one in three over the next 12 months.

Over the next nine months Kaufman expects the fed funds target rate to remain in its current range of between zero and 0.25 percent.

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To support the slowing economy, the Federal Reserve will likely take further steps to ease policy beyond those it announced this week, including buying larger amounts of government securities, veteran Wall Street economist Henry Kaufman said. Tuesday, the Federal Open...
Fed,Bonds,Economy,Henry,Kaufman
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2010-26-13
Friday, 13 Aug 2010 07:26 AM
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