MBS to Fire-Breathing Sell-Off Dragon: ‘Your Move’

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Beerenefits of this accommodative monetary policy program still significantly outweigh the costs. While some improvement in labor markets has been achieved, it does not yet constitute progress sufficient to merit halting the asset purchase program.”

“As for the costs, the Fed is and should be very attuned to unintended consequences – and is intently monitoring an array of asset prices, including stock prices, housing prices, and other widely held assets. At this point it seems that fundamentals are prevailing, and potential costs are well contained.”

I also believe that the Federal Reserve should make adjustments to the program based on economic outcomes – that if the economy and the outlook improve, the rate of purchases could be gradually reduced, rather than suddenly stopped once we have achieved substantial improvement in labor markets. By the way, a reduction is one possibility, but of course adjustments could be down or up – because if the incoming economic data do not reflect improvements consistent with both elements of our dual mandate, I believe the Fed should be willing to increase asset purchases. ”

Coffeehanging the flow of purchases does not necessarily yield, in the end, a smaller central bank balance sheet. ”

“In terms of monetary policy, it would in my view be premature to stop the Fed’s large-scale asset purchase program at this time. I believe the Fed should continue the purchase program until we see more sustained improvement in labor markets and have greater confidence that the economic recovery is sufficiently self-sustaining to yield continued progress in reducing the still very high unemployment rate. ”

“The bottom line is that we really need to see the economy grow, as I hope and expect, more quickly than at the 2.1 percent growth rate it has averaged over the recovery. Faster growth is essential to attaining inflation and employment outcomes consistent with the Federal Reserve’s dual mandate from Congress – and more broadly for the economic wellbeing of the many Americans who have struggled through a long and slow recovery.”

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