Fed should not set limit on economy aid: Kohn
WASHINGTON (Reuters) - The Federal Reserve should not announce a limit on its actions if it resumes purchases of Treasury securities to stimulate the U.S. economy, the former vice chairman of the central bank said.
Donald Kohn, who retired as vice chairman on September 1, told the New York Times in an interview published Monday the economy was in "a slow slog out of a very deep hole," and that the Fed should take additional measures if a recovery continued to be slow.
Actions could include purchase of more government securities to keep interest rates low, he said. The Fed has pumped $1.7 trillion into the economy through steps such as purchase of longer-term securities.
"To have a substantial effect, people would have to anticipate substantial purchases," the newspaper quoted Kohn as saying.
"Does the Federal Reserve need to announce it's buying $1 trillion? Not necessarily. If the Fed said, 'We're buying a smaller amount now but we'll continue to watch the situation and if it warrants we'll buy more,' that sort of would give the public and the markets a sense that somebody was out there, ready to buy if the economic situation weakened further or didn't improve."
Federal Reserve chairman Ben Bernanke said on August 27 the U.S. economic recovery had weakened more than expected, and the Fed stood ready to act if needed to spur growth.
At a banking conference, Bernanke also said the Federal Reserve Board had not agreed on criteria that would prompt additional easing.
The newspaper said it interviewed Kohn by telephone while he was on vacation before becoming a senior fellow at the Brookings Institution, a Washington think tank.
(Reporting by Charles Abbott; editing by Jeffrey Benkoe)
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