Home / World News / Transcripts show Fed divided in 2012 over bond purchases – The Denver Post

Transcripts show Fed divided in 2012 over bond purchases – The Denver Post

WASHINGTON — Transcripts released Friday show sharp divisions inside the Federal Reserve in 2012 over the need for a third round of bond purchases to boost a lagging economy.

The doubters, including the presumed incoming Fed chair Jerome Powell, expressed fears that the risks outweighed what they believed would be small benefits. Even then-Fed Chairman Ben Bernanke, who was pushing for the move, conceded that whatever action the Fed took was “going to be a shot in the proverbial dark.”

After extensive debate over two days, the central bank ended up supporting Bernanke by voting to launch the new effort to bolster the economy by buying $40 billion monthly in mortgage-backed securities to push long-term borrowing costs down.

The discussion was revealed in full transcripts of the Fed’s eight meetings in 2012, released after the customary five-year delay.

The transcripts showed a central bank struggling to come to grips with an economy still trying to gain momentum after the 2008 financial crisis which had pushed the country into the deepest recession since the 1930s.

All officials agreed that the economy was weak, but they differed sharply over what the Fed should do. One group argued that after two rounds of bond purchases totaling over $2 trillion, it was not likely that a third round would do much good. The Fed was buying bonds as a way to lower long-term interest rates and spur borrowing by businesses on new equipment and consumers on such items as homes.

Janet Yellen, then the Fed’s vice chairman who would succeed Bernanke, was a strong supporter of the new round of bond purchases. New board member Jerome Powell, who joined the Fed in May 2012, was less enthusiastic. Powell has been nominated by Trump to succeed Yellen as Fed chairman next month.

“My concern is that for very modest benefits, we are piling up risks for the future,” Powell said.

Several presidents of the Fed’s regional banks argued against new bond purchases, saying that they could trigger higher inflation down the road and create dangerous asset bubbles in such areas as stock prices.

Among the other details revealed in the discussions:

–Yellen warned that without further Fed help, the economy could be facing a “lost decade” of high unemployment from a “painfully slow recovery.”

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