Bernanke bond plan faces more skeptics within Fed
Monday, January 24, 2011
WASHINGTON (AP) — Few expect any major shifts when the Federal Reserve’s policymaking panel meets this week, even though two of its new voting members have been skeptics of the Fed’s $600 billion Treasury bond purchase plan.
That could all change by spring, when the Fed must decide whether to extend its bond purchases. Any push to renew the program beyond its scheduled June 30 end date would likely face stiffer resistance within the Fed.
The Treasury bond purchases are intended to aid the economy by lowering interest rates, encouraging spending and raising stock prices. But some, like the two new Fed voting members, warn that the bond purchases could eventually ignite inflation by keeping rates too low for too long.
The Fed’s first meeting of the year will occur Tuesday and Wednesday, after which it will issue a policy statement. Among four regional Fed bank presidents who will rotate onto the policymaking group are two who have spoken out against the Treasury bond plan: Charles Plosser of the Federal Reserve Bank of Philadelphia and Richard Fisher of the Federal Reserve Bank of Dallas.
Plosser and Fisher would likely oppose any effort to extend the program. They may even pressure Chairman Ben Bernanke to scale back the program before June.
The Fed’s mid-March or late-April meetings will likely be pivotal. That’s when the Fed will probably signal its decision about the bond-buying program. The bond purchases, besides inciting concerns from some Fed officials, have drawn criticism from Republican lawmakers and from China, Brazil, Germany and other key trading partners.
When they were previously voting members, during the 2008 financial crisis, Fisher and Plosser opposed Bernanke’s deep interest rate cuts. Fisher dissented at five of the Fed’s 10 meetings that year, Plosser at two.
Both could also dissent from the Fed’s likely decisions this year to continue holding its key interest rate at a record low near zero. Most economists don’t think the Fed will start boosting rates until next year. But Fisher and Plosser may try to prod the Fed to raise rates sooner.
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