* Rosengren: strong case for ongoing $85 bln monthly bond
* Bullard: Twist less powerful, outright buys should be
* Dudley exploring why lower MBS yields not trickling down
By Jonathan Spicer and Alister Bull
NEW YORK/LITTLE ROCK, Dec 3 U.S. central bankers
appear satisfied with the impact of their latest monetary
stimulus, though there is some disagreement over how forcefully
to continue purchasing bonds, remarks by two top policymakers on
Boston Federal Reserve Bank President Eric Rosengren, one of
the most vocal proponents of Fed asset purchases, said there was
a "strong case" for the Fed to stay the course on accommodative
policies next year and continue buying a total of $85 billion in
bonds each month.
In September, the Fed announced an open-ended bond buying
scheme that began with $40 billion per month in mortgage-backed
That new effort to boost the economy comes on top of a
separate program in which the Fed was buying $45 billion of
longer-term Treasury securities per month with proceeds from
sales of a like amount of shorter-term debt.
The latter plan, known as Operation Twist, is set to expire
at the end o f this month, and m ost analysts e xpect the central
bank to substitute an equal amount of long-term Treasury buying.
However, James Bullard, president of the St. Louis Fed,
argued the central bank should not replace its expiring
'Operation Twist' program on a dollar-for-dollar basis. He said
the impact of outright purchases that expand the Fed's $2.8
trillion balance sheet further would be more pronounced than
those in Twist, where the funds for long-term buys come from
sales or redemptions of short-term maturities.
"If the goal is to keep policy on its present course, the
replacement rate should be less than one-for-one," Bullard told
the Little Rock Chamber of Commerce. In a separate interview
with the Wall Street Journal, Bullard suggested $25 billion as
an adequate monthly amount.
The U.S. economy grew at a 2.7 percent annual rate in the
third quarter but is expected to have slowed in the final months
of the year. Unemployment remains elevated at 7.9 percent.
William Dudley of the New York Fed argued the Fed's
mortgage-backed securities purchases have provided much-needed
support to the economy, even if their benefits in easing
financial conditions have not been fully passed through from
financial institutions down to customers.
"Our policy has been and continues to be effective - though
it is certainly not all-powerful in current circumstances," he
said at a conference on mortgage finance at the New York Fed, at
which his Boston Fed counterpart Rosengren was the keynote
The conference was aimed at exploring some of the blockages
in the transmission of Fed policy to American consumers, Dudley
"We are focusing on ... the significant widening of the
spread between yields on mortgage-backed securities and primary
mortgage rates," he said.
In response to the financial crisis and deep recession of
2007-2009, the Fed had already slashed official rates to zero
and bought some $2.3 trillion in government and mortgage-backed
bonds prior to the launch of its latest stimulus.