Posted by
alfredlester on Monday, June 28, 2010 7:48:20 PM
WASHINGTON (MarketWatch) -- The Federal Reserve should be wary of the short-term allure of further asset purchases, said Fed governor Kevin Warsh on Monday.
In a speech in Atlanta, Warsh set a high bar for his support of further asset purchases, saying he would need to be convinced the benefits of the purchases would outweigh the costs of "erosion of market functioning, perceptions of monetizing indebtedness, crowding-out of private buyers, or loss of central bank credibility."
The Fed has bought over $1 trillion in housing-related assets to keep long-term market interest rates low and support the recovery. The purchases ended in March.
Markets Hub: Austerity message from G20
The pledge by G20 nations to halve their deficits by 2013 and stabilize their debt by 2016 sends an important symbolic message that the days of endless stimulus for over.
Some economists want the Fed to buy more assets given the sense that the economy has lost some momentum recently us fast cash.
In fact, Warsh seemed keen to commence selling assets. While there would be no sales in the "near-term," Warsh said he favored "gradual, prospective" sales divorced from interest rate policy.
This is an alternate view from Fed chairman Ben Bernanke, who has linked interest rates and selling assets.
Economists don't think the Fed will sell assets until after they have started hiking short-term interest rates.
The Fed made no mention of asset sales or purchases in their latest policy statement following their two-day monetary policy meeting.
Fed watchers will be examining a summary of the Fed's closed-door discussions to be released on July 14. In addition, Bernanke is expected to present a report on monetary policy to Congress next month.
The Fed: Warsh wary of Fed buying more assets