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Fed’s Rosengren: Let’s Buy More Bonds

The Exchange

The head of the Federal Reserve Bank of Boston wants the U.S. central bank to do more -- specifically, he's calling for additional bond purchases, on top of the copious funds that already have been directed to the fixed-income markets.

Eric Rosengren, The Wall Street Journal reported, wants the Fed to undertake "an aggressive, open-ended bond buying program" that would stop only when the economy's growth rate accelerates and unemployment begins dropping. Rosengren isn't right now a voting member on the Federal Open Market Committee, where seats rotate among some of the regional heads, but as the president of one of the 12 Fed branches, he doesn't exactly lack influence either.

That said, his remarks didn't appear to be having much if any effect on the Treasury market Tuesday. The yield on the 10-year note was up 6 basis points to 1.63%, and the 30-year bond was tacking on 8 bps to 2.73%, FactSet data show. When the market suspects huge buying operations are being contemplated, the expectation would be for yields to decline as prices, which go in the opposite direction, get bid higher.

In recent years, the Fed has bought hundreds of billions of dollars of bonds through its quantitative easing rounds and Operation Twist, a program by way of which it acquired long-dated debt and sold short-term securities. As the WSJ report noted, while Rosengren and those of like mind will make the case for the Fed doing even more, bankers worried about inflation aren't going to be convinced that another massive bond-buy is the way to go.

Last week, the FOMC held its fifth meeting of the year, with three more scheduled to come in 2012. In the statement that followed its most recent gathering, the Fed said it would "closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

So the takeaway then, is that something could happen, but whether that's another Treasury-buying program or not (again, if anything), we don't know. Along with its rate-depressing bond buys, the Fed has kept its target fed funds rate in the zero to quarter-point band since the end of 2008 and has said it expects to keep the rate "exceptionally low" through at least late 2014.

The Fed's counterpart in Europe, the European Central Bank, has been a little less mysterious about its own plans for dealing with economic weakness without definitively spelling it out. However, it's clear that the ECB may well be gearing up its own bond purchases. Recent comments by the bank's president, Mario Draghi, indicated that officials are ready to do whatever is needed to keep the euro currency intact and protect weaker nations, such as Spain and Italy, from rising interest rates.

We want to hear from you. Should the Fed get more involved in the bond market or undertake some other action to boost the economy? Or are you too worried about inflation?