–Warsh: Fed Now Has Even Greater Burden to Prevent Inflation
–Fed Cannot ‘Alone’ Fix Unemployment
By Claudia Hirsch
NEW YORK, Nov 8 (MNI) – Federal Reserve Board Governor Kevin Warsh
Monday said that with the latest, second round of quantitative easing,
the central bank has an even greater responsibility to guard against
inflation.
“We bought ourselves eight months of hard work,” Warsh said,
answering audience questions following remarks at the Securities
Industry and Financial Markets Associations annual meeting. “The more
action we take for good purposes, the larger the balance sheet gets, the
more aggressive we are … . Puts more of a burden on us … to make
sure that inflation expectations do not move up materially.”
At last Wednesday’s policy-setting meeting, the Fed pledged as much
as $600 billion in Treasury securities purchases, at a monthly clip of
$75 billion, by the end of the second quarter of next year. Warsh is a
voting member of the Open Market Committee, and he joined all but one of
his colleagues in approving what has come to be known as QE2.
Warsh said the Fed’s “most important asset” is its institutional
credibility in regard to its dual mandate of price stability and maximum
sustainable employment. He said the Fed monitors a “broad range” of
inflation measures, from price-trend forecasts to real-time price action
in foreign exchange and commodities markets. If necessary, he promised,
the Fed could “reconsider” its QE2 liquidity injections.
But Fed actions cannot unilaterally fix what ails the battered U.S.
labor market and reduce the unemployment rate from its current 9.6% to a
more desirable level between 5% and 6%, Warsh said.
“Monetary policy cannot do it alone,” he said, and added that
fiscal, trade and regulatory policy must also adjust “so that theyre
helping growth.” Lacking that coordination, “monetary policy is not
well-situated” to shore up job creation, Warsh said.
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