Fed Official Says Bank Should Have Done More
Federal Reserve officials have been criticized by many outsiders in recent years for pursuing easy-money policies too aggressively and risking inflation. A senior Fed official on Monday said the Fed has made mistakes in recent years--but he said the big mistake was the opposite of the common critique. The Fed erred, he said, in not doing enough.</br></br>"Monetary policy, while highly accommodative by historic standards, may still not have been sufficiently accommodative given the economic circumstances," William Dudley, president of the Federal Reserve Bank of New York, said in a speech in New York.</br></br>Many U.S. academics--including Ben Bernanke before he became Fed chairman--criticized the Bank of Japan in the 1990s and early 2000s for responding to its financial crisis and subsequent recession too timidly. Mr. Dudley's comments suggested the Fed might have made the same mistake.</br></br>The Fed pushed short-term interest rates to near zero in late 2008 and has said it is likely to keep them there until at least mid-2015. Moreover, it has pumped trillions of dollars into the financial system while purchasing long-term U.S. Treasury debt and mortgage backed securities. The policies are meant to push down long-term interest rates to encourage spending, investment and growth.</br></br>"My conclusion is that the easing of financial conditions resulting from non-traditional policy actions has had a material effect on both nominal and real growth and has demonstrably reduced the risk of particularly adverse outcomes," Mr. Dudley said. "Nevertheless, I also conclude that, with the benefit of hindsight, monetary policy needed to be still more aggressive."