September 24, 2012 / 8:35 PM / 7 years ago

Fed's $40 billion monthly MBS buys delivers maximum effect: Williams

SAN FRANCISCO (Reuters) - The U.S. Federal Reserve figures that $40 billion in monthly purchases of mortgage-backed securities is the most it can buy without disrupting the market, San Francisco Federal Reserve Bank President John Williams said on Monday.

Any more, he said, and market functioning could be disrupted because the Fed would dominate the purchases of new securities; any less, he said, would have less than maximum impact.

The U.S. central bank this month said it would keep up its purchases of housing-backed assets until the labor market improves substantially, and would do even more if that standard is not met.

The Fed is also buying Treasuries in its Operation Twist program, in which the Fed buys long-term Treasuries and sells a like amount of short-term Treasuries. “Twist” will expire at the end of the year.

Saying he doubts there will be “ongoing sustained and measurable improvement in a broad set of labor market conditions” by the end of the year, Williams said the Fed will revisit its decision on the level of its monthly asset purchases at that time.

Judging improvement in the job market will require a look at the unemployment rate as well as jobs gains and overall GDP growth, he said. (Reporting by Ann Saphir; Editing by Chizu Nomiyama)

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