Fed should be prepared to embark on a new stimulus blitz, says ex-vice chair

THE Federal Reserve should not announce a limit on its actions if it resumes purchases of Treasury securities to stimulate the US economy, the former vice chairman of the central bank said.

Donald Kohn, who retired as vice chairman last week, told the New York Times in an interview published yesterday that the economy was in “a slow slog out of a very deep hole,” and that the Fed should take additional measures if a recovery continued to be slow.

Actions could include purchase of more government securities to keep interest rates low, he said. The Fed has pumped $1.7 trillion into the economy through steps such as purchase of longer-term securities.

“To have a substantial effect, people would have to anticipate substantial purchases,” Kohn said.

“Does the Federal Reserve need to announce it's buying $1 trillion? Not necessarily. If the Fed said, ‘We’re buying a smaller amount now but if it warrants we’ll buy more,’ that sort of would give the public and the markets a sense that somebody was out there,” he added.