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Stimulus 2: US Fed talks asset purchase

business Updated: Oct 05, 2010 23:19 IST

AP
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US Federal Reserve Chairman Ben Bernanke said on Monday that the economy could be helped by another round of asset purchases by the central bank.

Bernanke’s comment reinforces analysts’ beliefs that the Fed is likely to take action at its next meeting slated for November 2-3. The Fed is considering launching a new programme to buy government debt, a move aimed at driving down rates on mortgages, corporate loans and other debt.

It is wrestling with how much it should buy. “I do think the additional purchases — although we don’t have the precise numbers for how big the effects are — I do think they have the ability to ease financial conditions,” Bernanke said.

During the recession, the Fed ended up buying a total of roughly $1.7 trillion of mortgage securities and debt, as well as government bonds. Bernanke called that “an effective programme.” At its September 21 meeting, the Fed signaled that it stands ready to take additional action if the recovery weakens.

Bernanke and other Fed officials have suggested that the Fed’s next likely step to help the economy is buying more government debt, to get Americans to boost spending.

An idea gaining favour is for the Fed to start with a modest amount — perhaps $100 billion or less — and then decide on how much, if any, additional debt should be purchased.

Brian Sack, executive VP at the Federal Reserve Bank of New York, said, “Expansion of the securities portfolio to date has helped to foster more accommodative financial conditions, and further expansion would likely provide additional accommodation.”