Tags: fed | fred | mishkin | balance | sheet

Mishkin: Fed Balance Sheet Dangerously Too Large

By    |   Tuesday, 03 Aug 2010 10:52 AM

It would be a mistake for the Federal Reserve to expand its bulging balance sheet further now in an effort to prevent a double-dip recession, says former Fed Gov. Frederic Mishkin.

His remarks came in reaction to recent comments from St. Louis Fed President James Bullard, who suggested the opposite.

Bullard said the best response to another economic shock would be a resumption of the Fed’s program to buy Treasury bonds rather than a continued focus on interest rates. The $300 billion purchase of Treasuries ended last October.

“This is coming from one particular bank president,” Mishkin said on CNBC.

He said “But this isn’t a mainstream issue. You don’t hear members of the board of governors talking about doing these asset purchases and not shrinking the balance sheet,” which has been criticized as growing dangerously large.

Balance sheet expansion isn’t the answer, Mishkin maintains.

“I think it would be a mistake for the Fed to do so in the current environment,” he said. “It’s very premature for people to think the Fed has to make decisions right now about these issues.”

Investors have come to expect too much out of the Fed, Mishkin says.

“People have to recognize that if the central bank tries to do too much, it won’t be successful.”

Philadelphia Fed President Charles Plosser shares Mishkin’s fears. “We run the risk of doing things in an effort to solve a problem that we’re not well equipped to solve,” he told The Wall Street Journal.

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It would be a mistake for the Federal Reserve to expand its bulging balance sheet further now in an effort to prevent a double-dip recession, says former Fed Gov. Frederic Mishkin. His remarks came in reaction to recent comments from St. Louis Fed President James Bullard,...
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2010-52-03
Tuesday, 03 Aug 2010 10:52 AM
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