Resigned to holding trillions of dollars in bonds and buying yet more to fight f...
CHICAGO - Resigned to holding trillions of dollars in bonds and buying yet more to fight future downturns, Federal Reserve officials are debating how to design future asset purchases to be as effective as possible in steering markets and holding down interest rates.
These questions are front and center to a two-day Chicago Fed conference on the central bank’s strategy that kicked off on Tuesday. The answers could prove critical in determining how the Fed next deploys its virtually limitless power to buy assets, a strategy designed to bring down the long-term interest rates that shape household spending and business investment.
Others suggested the Fed may need to buy even more than the $3.5 trillion purchased over several years last time, relying on a “stronger, sooner” strategy to shock markets, or to set explicit rules about how and when “quantitative easing” would be used so investors would know what to expect. “There will be a next time,” Powell said, contending that while programs like Fed asset purchases were controversial at the time, he feels they worked and should no longer be viewed as “unconventional.”
And the next crisis may be of a nature that requires a different strategy depending on what markets are stressed and in what ways, a barrier to announcing too much ahead of time, said Janice Eberly, a Northwestern University professor who collaborated with Wright and Harvard professor James Stock on research for the conference.In research based on how markets reacted to crisis-era programs, Eberly said the best results came when the Fed moved “immediately...
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