US Fed plans further quantitative easing

Jan 15, 2013 12:00 AM

Federal Reserve chairman Ben S Bernanke has indicated a further easing of liquidity through planned monthly purchases of $85 billion of treasury bonds to bolster the economy.

This is a $45 billion increase from the current rate of $40 billion in monthly purchases.

''So far, we think we are getting some effect, it is kind of early,'' Bernanke said at the University of Michigan's Gerald R Ford School of Public Policy in Ann Arbor on Monday.

''We are going to continue to assess how effective'' the programme is ''because it is possible that as you move through time and the situation changes that the impact of these tools could vary,'' he added.

The Federal Open Market Committee had, in December, 2012 decided to increase the amount of bond buy-backs by $45 billion in addition to the monthly purchases of $40 billion of mortgage-backed securities.

The committee set no limit on the size or duration of the bond purchases.

Meanwhile, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said the Fed was still not doing enough to bring the unemployment rate down.

"I would say that my outlook for unemployment and my outlook for inflation both point to a need for more accommodation than is currently being provided by the FOMC," he said in prepared remarks before the Financial Planning Association of Minnesota.

Bernanke too linked the recovery in the job market to the Fed's bond purchases.

John C Williams, president of San Francisco Fed, said the central bank will probably need to keep buying assets ''well into'' the second half of the year to combat unemployment.

Dennis Lockhart, president of Atlanta Fed, said that while he supported open-ended bond purchases so far, further expansion of a record stimulus could complicate the eventual shrinking of the balance sheet.

''Open-ended does not mean without bound,'' he said.

FOMC had last month vowed to keep rates near zero as long as the jobless rate is above 6.5 per cent and inflation is 2.5 per cent or less.

Most of the FOMC members, however, were of the view that it would ''probably be appropriate to slow or stop buying well before the end of 2013,'' while a ''few'' others were willing to let the programme run to the end of the year, while ''a few others'' did not give a time frame.

 

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