Lockhart: Asset Purchases the Right Move
The Federal Reserve's plan approved this month to buy $600 billion in Treasury notes will incrementally increase overall demand in the economy and has already lowered the risk of deflation, Atlanta Fed President Dennis Lockhart said in a Nov. 16 speech.
Furthering the Fed's dual mandate
"For example, the sellers of Treasuries will have more funds available to buy goods and services," Lockhart said. "Or they may buy other assets like corporate bonds or shares. Doing so will tend to push up the prices of those assets, making the people who own them either directly or, through their investment funds, better off."
He acknowledged that the Federal Open Market Committee decision in early November to purchase securities has been controversial at home and abroad. For instance, some critics have argued that the asset purchases will stoke inflation by increasing the money supply. Others have said the purchases are intended to devalue the dollar and therefore make U.S. exports less expensive to overseas buyers.
"Ordinarily in my remarks I would defer to the U.S. Treasury Department on matters related to the dollar," he stated. "That said, I don't think it is out of line to state clearly that, as I see it, there is no monetary policy intent to engineer specific values—or even a direction—for the dollar." Lockhart added that the perceived risk of sparking inflation with the asset purchase program must be weighed against the risk of inaction, the primary one being a "recessionary relapse possibly tipping into a long spell of deflation."
Anticipating a measured recovery
November 23, 2010