NY Fed Prez: It's Time to Inflate

The president of the Federal Reserve Bank of New York on Friday all but called for the Fed to resume large-scale purchases of long-term government bonds, solidifying a growing conviction on Wall Street that the central bank will do just that, starting in November, reports NYT.


“Viewed through the lens of the Federal Reserve’s dual mandate — the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory,” the president, William C. Dudley, said in a speech to the Society of American Business Editors and Writers in Midtown Manhattan.

The fact that Dudley specifically called for the purchase of long-term bonds suggests that he may be clueless as to how interest on excess reserves has slowed monetary growth. He seems to be talking in a paradigm that existed before Bernanke introduced all his new monetary tools.

Bottom line: Bernanke can run circles around this Fed prez. It's possible for Bernanke to even buy long-term bonds to appease Dudley, but drain in other ways to prevent any significant money growth. The ball remains on Bernanke's side of the court.