Federal Reserve official signals willingness to increase debt purchases

[WASHINGTON] The Federal Reserve could expand debt purchases, a key tool it has deployed to help the US economy recover from the Covid-19 pandemic, Vice Chair Richard Clarida said on Monday.

The Fed already cut its benchmark lending rate to zero in March at the start of the Covid-19 pandemic, and has pledged to keep it there until inflation and employment recover.

But Mr Clarida signaled the central bank is willing to ramp up purchases of bonds - Treasury debt and mortgage-backed securities - to help support economic growth.

The Fed "is committed to using all of our available tools - not just the federal funds rate and forward guidance, but also large-scale asset purchases" to achieve the goals, he said in a speech to the Brookings Institution.

Policymakers discussed the bond buying plan at their latest meeting earlier this month noting "the critical role they are playing in supporting the economic recovery," he said.

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The Fed's bond purchases total about US$120 billion a month, adding to the central bank's already massive debt holdings, which were built up in the wake of the 2008 global financial crisis to stabilise the teetering US financial system.

Clarida said the continued purchases keep funds in the financial system, which means households and businesses have access to credit.

AFP