Federal Reserve Chairman Kevin Warsh announced on Wednesday a wide-ranging project to review key aspects of central bank policy making. This move indicates that any near-term changes to how the Fed manages its massive stock of bonds are unlikely in the near future.
Task Forces to Study Fed Operations
Warsh is appointing task forces in five areas that are central to the broad conduct of monetary policy. These panels will examine how the Fed approaches inflation, its communications, the use of economic data, as well as productivity and the jobs market.
One of the task forces will also look at the issue of the Fed’s balance sheet, which Warsh has long argued has become too large. He believes that the extensive holdings of bonds owned by the Fed distort market signals and push the Fed into making decisions best left to elected officials.
The Fed has used aggressive purchase of bonds to stabilize stressed markets and to augment the stimulative power of monetary policy when its short-term interest rate target is set at near zero levels. However, experts believe that any big changes in the Fed’s balance sheet will take some time to happen given the complexity of the system.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
