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| The façade of the old Federal Reserve Bank of San Francisco at 400 Sansome Street. (Photo credit: Wikipedia) |
Williams, president of the San Francisco Fed, said that because it will take more than a few months for the U.S. central bank's latest round of bond-buying to drive down the high unemployment rate, there is good cause to ratchet up the Fed's already aggressive measures.
The Fed began buying $40 billion a month in mortgage-backed securities this month and has pledged to continue the purchases until the labor market has improved substantially. The program is called QE3 because it is the Fed's third try at quantitative easing, or buying bonds to stimulate the economy. The Fed is also buying $45 billion in long-term Treasuries each month and selling a like amount of short-term Treasuries in a program known as Operation Twist, which is also designed to lower long-term borrowing costs, such as mortgages. Twist is set to expire at the end of the year.
Because unemployment will likely have budged little from its current 8.1 percent level by that time, Williams said, "a strong case could be made" for continuing the current level of mortgage-backed securities purchases and expanding into Treasuries purchases once Twist expires. What QE3 should do, he said, is push down borrowing costs, making the purchase of new cars cheaper, for example, which in turn will boost sales and, eventually, prompt factories to hire new workers.
"This is exactly the kind of virtuous circle that provides the oomph in a healthy economic recovery," Williams said in a speech to the City Club of San Francisco. ... Continue to read.
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