The U.S. Federal Reserve should consider raising the proportion of short-term Tr...
HONG KONG - The U.S. Federal Reserve should consider raising the proportion of short-term Treasury bonds it holds to give itself more options to respond to economic pullbacks, a top policy maker said on Tuesday.
He is the third Fed policymaker in two days to weigh in on exactly what bonds the Fed should keep and why, following speeches by his counterparts in Chicago and Philadelphia. “This would give the Federal Reserve the flexibility to take the policy step of lengthening the maturity of its balance sheet assets the next time a significant economic downturn occurs.”
“The Federal Reserve’s balance sheet decline has been quite gradual, and proceeded along roughly the same path when stock prices have been rising as when stock prices have been falling.” In January, the Fed said it would be willing to adjust its plans if financial conditions warranted. Last week policymakers announced the runoff would end by September.
While acknowledging that a pause by the Fed was the “responsible thing to do,” he cautioned investors not to read too much in the inverted U.S. Treasury yield curve, which is widely seen as an indicator of recession.The 10-year U.S. yield has fallen more than 20 basis points since the Fed last week ditched projections for raising rates this year and announced the end of its balance sheet reduction, reaching levels below short-term yields.
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