Tags: federal reserve | easing | rates | stimulus

Fed's Williams: Dump QE Tool as Rates Rise From Zero

Friday, 18 Oct 2013 05:10 PM

Federal Reserve Bank of San Francisco President John Williams, who has supported record stimulus, said the central bank should not rely on bond buying to buoy the economy once its benchmark interest rate returns to more normal levels.

“I don’t see LSAPs as being part of the FOMC’s toolkit once we leave the zero bound behind us,” Williams said in the text of prepared remarks given in Boston, referring to large-scale asset purchases and the Federal Open Market Committee.

“We’re still much less certain about their effects than we are about the effects of changes in the federal funds rate.”

After driving its benchmark interest rate to near zero in December 2008, the U.S. central bank has expanded its balance sheet to a record $3.81 trillion and provided more guidance on the future course of policy to support economic growth. Policy makers are now debating when to begin dialing back their $85 billion in monthly asset purchases.

The Fed may continue communicating its expectations for policy even after interest rates normalize, although it’s unlikely officials will tie actions to specific economic threshold as they are now, Williams said.

The Fed last month repeated its pledge to keep interest rates low as long as unemployment is above 6.5 percent and inflation is no more than 2.5 percent.

“I see forward guidance typically being of a more qualitative nature, highlighting the key economic factors that will affect future policy actions,” he said.

“If we again find ourselves in a situation where conventional policy has reached its limits, then we will have the ability to return to more explicit forward policy guidance to provide additional monetary stimulus.”

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Federal Reserve Bank of San Francisco President John Williams, who has supported record stimulus, said the central bank should not rely on bond buying to buoy the economy once its benchmark interest rate returns to more normal levels.
federal reserve,easing,rates,stimulus
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2013-10-18
Friday, 18 Oct 2013 05:10 PM
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