Fed should buy as many bonds as necessary: Rosengren

Tue Aug 7, 2012 6:59pm EDT
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By Mark Felsenthal

WASHINGTON (Reuters) - A top Federal Reserve official said on Tuesday the Federal Reserve should launch another bond-buying program of whatever size and duration is necessary to get the economy back on its feet, signaling support from some U.S. policymakers for aggressive steps to boost the flagging recovery.

Boston Fed Bank President Eric Rosengren said in interviews with the New York Times and CNBC that the Fed should start buying Treasury and mortgage-backed securities and continue doing so until the economy was back to full strength.

"You continue to do it until it's clear that you're no longer treading water," Rosengren told the New York Times. "You continue to do it until you have documented evidence that you're getting growth in income and the unemployment rate consistent with your economic goals."

Rosengren is not a voter this year on the Fed's policy-setting Federal Open Market Committee and is considered to be among the most outspoken doves who favor an activist approach to stimulating growth and bringing down the high unemployment rate.

Fed Chairman Ben Bernanke, who will be the ultimate arbiter of whether the central bank launches more stimulus, called the recovery "fragile" at an event on financial literacy. He said the effects of the euro area crisis have been "pretty significant" for the U.S. economy and have slowed economic growth.

Bernanke did not offer clues as to whether he is ready to recommend another round of easing.

However, Rosengren's suggestion that the Fed not place an upper limit on its bond buying represents a new line of thinking in the many unorthodox steps the U.S. central bank has taken since it exhausted its conventional tool -- control over short-term interest rates. The Fed cut the benchmark federal funds rate to near zero in December 2008.

But it also flies in the face of the views of other policymakers who think taking such bold measures so close to the November general election would expose the Fed to criticism of political intervention.   Continued...

Boston Fed President Eric Rosengren speaks during the Sasin Bangkok Forum July 9, 2012. REUTERS/Sukree Sukplang