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Former Chair Wants Federal Reserve Buy Stocks and Corporate Bonds With Printed Money

Federal Reserve Chairman Janet Yellen delivers the semi-annual testimony on the "Federal Reserve's Supervision and Regulation of the Financial System" before the House Financial Services Committee in Washington, U.S., September 28, 2016. REUTERS/Joshua Roberts

WASHINGTON (Reuters) - The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday.

Speaking via video conference with bankers in Kansas City, Yellen said the issue was not a pressing one right now and pointed out the U.S. central bank is currently barred by law from buying corporate assets.

But the Fed’s current toolkit might be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.”

“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” she said, adding that buying equities and corporate bonds could have costs and benefits.

Yellen told a conference last month the Fed would fight a future recession by buying government debt and jaw boning interest rates lower with pledges on future policy. But she said other tools might be necessary, including expanding the range of assets it would purchase.

In that speech, she also cited possibilities like raising the central bank’s 2 percent inflation target or targeting the nominal level of national economic output.

Reporting by Jason Lange and Lindsay Dunsmuir; Editing by Chizu Nomiyama

Go to reuters.com
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