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Powell Was Hesitant About Fed MBS Purchases in 2012

Trump and Jerome PowellTranscripts released by the Fed provided insight into the man due to take over as Fed chair in 2018, assuming he receives Senate confirmation. The Fed published meeting transcripts from 2012 last week, continuing their policy of releasing such transcripts after a five-year delay. Those transcripts reveal that Powell was extremely reluctant to support the Federal Reserve’s third bond-buying program in that year.

At the Fed’s September 2012 meeting, Powell said that he was supporting the Fed’s decision to begin buying $40 billion in mortgage-backed securities per month “with a certain lack of enthusiasm,” and added that he was “somewhat uncomfortable with the road that we are on.” The purchase of the MBS was designed to help boost the economy and keep interest rates low as the nation struggled to recover from the housing crisis.

Nor was Powell alone in his misgivings. The transcripts reveal that then-Fed Chair Ben Bernanke supported the policy, but nevertheless described the Fed’s actions as “a shot in the proverbial dark.”

You can read the transcripts and learn more about the Fed’s 2012 meetings by clicking here.

Meanwhile, with Fed Chair Janet Yellen departing and Jerome Powell in queue to replace her, the Fed is forecasting three total interest rate hikes during 2018. However, Philadelphia Fed President Patrick Harker thinks that might be one hike too many.

During a speech in Philadelphia Friday, Harker told a crowd that the Fed should consider a more conservative approach to rate hikes due to inflation remaining low. According to Harker’s prepared remarks, Harker said, “Domestically, I expect inflation will run a bit above target in 2019 and come down to target the following year, but I am more hesitant in this view than I am on economic activity. If soft inflation persists, it may pose a significant problem. For that reason, my own view is that two rate increases are likely to be appropriate for 2018."

Harker did vote in support the Fed’s most recent interest rate increase in December, the third such rate increase for 2017. However, he cited the continuing low inflation as a trend that might justify reconsidering how the Fed attempts to balance its twin goals of full employment and price stability.

Harker said that if inflation trends downward, it might “be time to re-evaluate the way we conduct policy." He added, however, "I should be clear that I'm not pushing for any changes, nor do I have any particular change I would prefer. But it is a question for the profession itself, and we do need people thinking about this."

About Author: David Wharton


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