The Federal Reserve should reduce purchases of U.S. bonds to reduce the risks of continuing to expand its balance sheet, said on Friday a major central bank adviser, who noted that the latest Fed statement explicitly states that could change the pace of purchases . The president of the Kansas City Fed, Esther George, who was the only dissenting vote against monetary policy agreed at each meeting this year, acknowledged that markets pay much more attention to the view that the Fed will increase the pace of shopping.
"But the press also allows reductions" George said over lunch in a business organization in Wyoming.
"Then it is my hope, as my colleagues and I continue to discuss these issues and evaluate what is happening in the economy, that opportunity is there and we can start doing this out," he said.
On May 1, the Fed decided to keep buying bonds at a monthly rate of 85,000 million dollars, but modified the statement announcing this decision to say that the company was "willing to increase or decrease the pace of its purchases to keep appropriate accommodative policy. "
Fed officials, including Chairman Ben Bernanke had said this in the past, but the incorporation in the statement given greater weight in the eyes of those who watch the movement of the Fed
Recent mixed signals on the U.S. economy, particularly a drop in a measure of inflation that the Fed closely observed, had led to speculation that the U.S. central bank may be ready to buy even more bonds as insurance Additional aims to maintain recovery.
U.S. growth accelerated to an annual rate of 2.5 percent in the first quarter from 0.4 percent in the previous three months, and created the unexpectedly solid amount of 165,000 new jobs in April, while that unemployment fell slightly to a still high 7.5 percent.
Inflation, however, that the Fed intends to keep about 2 percent-is only half that pace in its preferred indicator, the PCE price index.
Some warn that the figure is dangerously low and could lead to the risk of a damaging deflationary spiral if the economy weakens, although market-based measures for future inflation have remained well above 2 percent.
FISCAL PROBLEM
George said he expects U.S. growth to be around 2 percent for the year and said that job creation has averaged 200,000 per month for the last six months, a level that would begin to reduce sagging in the markets U.S. labor.
The Fed has kept interest rates near zero since late 2008, has bought about $ 2.7 trillion in bonds and has promised to keep rates ultra low until unemployment reaches 6.5 percent, provided when the inflation outlook remains below 2.5 percent.
George also said he favors reducing bond purchases because they fear that further expand the balance sheet, there could be future financial instability and an acceleration of inflation.
In particular, the prolonged period of near-zero U.S. interest rates has caused investors to "seek performance", exposing them to a significant risk when rates begin to rise while the Fed initiate a maneuver output current monetary policy .
As a result, the U.S. authorities should make a careful political transition to avoid frightening the markets and George made it clear that they see this as a challenge difficult to achieve successfully.
"My concern is that we do it in a way that does not generate sharp increases in rates, supporting mortgage rates, when we announce that we will halt bond purchases or that we somehow adjust," said George. (Reporting by Alister Bull, writing by Jason Lange in Washington, Editing by Kenneth Barry)
