SAN FRANCISCO Nov 14 The U.S. Federal Reserve
likely will keep buying both mortgage-backed securities and
Treasuries until late 2013, a top Fed official said on
Wednesday, suggesting the U.S. labor market will not see marked
improvement until then.
"I expect it will be some time until the job market makes
substantial progress toward our congressionally mandated maximum
employment goal," San Francisco Fed President John Williams said
at the University of San Francisco.
"I anticipate that we will need to continue our purchases of
mortgage-backed securities and longer-term Treasury securities
past the end of this year and likely well into the second half
of next year in order to best achieve our mandated goals."
The central bank began an open-ended program of asset
purchases in September, kicking it off with $40 billion in
mortgage-backed securities purchases each month.
The Fed is also buying 45 billion in long-term Treasuries each
month, and selling a like amount of short-term Treasuries, under
a separate program known as Operation Twist. Twist is due to
expire in December, but the Fed will likely need to continue to
purchase Treasuries in the new year as part of its current round
of quantitative easing, Williams said.
The Fed's asset purchases are aimed at pushing down
long-term interest rates when short-term rates are already near
zero. QE3, as this third round of asset buys is known, has
already begun to have the desired effects, Williams said, citing
near-record-low mortgage rates.
But unemployment, at 7.9 percent, is still too high, and
inflation is running below the Fed's 2 percent target. Added to
that, Williams said, are threats to the recovery from Europe's
snowballing crisis, China's slowdown, and the "fiscal cliff" of
automatic spending cuts and tax increases that will go into
effect in the United States at the start of 2013 if lawmakers do
not avert it with a compromise.
"The steps the Fed has taken to boost the economy won't
quickly return our economy to full strength," Williams said.
"But they can help speed the recovery and make it more secure."
Some critics have warned the Fed's asset purchases could
spark unwanted inflation, but Williams said such concerns are
not warranted because the high jobless rate makes it difficult
for businesses to raise prices or workers to demand pay raises.
Williams repeated his view that the unemployment rate will
stay above 7 percent until at least the end of 2014, and
inflation will stay below the Fed's 2 percent target for the
next few years.