By Steven K. Beckner

BOSTON (MNI) – A senior Federal Reserve Board economist said Friday
that the Fed staff is studying, among other things, the implications of
legal entanglements delaying home foreclosures.

David Reifschneider, senior associate director of the Fed’s
Division of Research and Statistics, said the Fed staff prepares “a lot
of these alternative scenarios” for members of the Fed’s policymaking
Federal Open Market Committee to consider, and he said one of these is
“what if mortage lending freezes up because of these legal issues” with
foreclosure.

“How does monetary policy respond to that?” Reifschneider asked,
adding, “It may be very hard for monetary policy to respond to that.”

Reifschneider, participating in a Boston Federal Reserve Bank
conference, said the Fed was “too sanguine” about the possibility of
reaching the “zero bound” on the federal funds rate before the crisis.

He drew the lesson that it “may be dangerous” for inflation to be
below a target of 2%.

As the Fed ponders a resumption of quantitative easing — an option
which Fed Chairman Ben Bernanke suggested the Fed may take in a speech
earlier in the day — some critics have warned that pumping more money
into the economy could lead to a rise in inflation expectations and
ultimately actual inflation, much as occurred in the 1970s.

But San Francisco Fed director of research John Williams, who
co-authored a paper with Reifschneider on making monetary policy near
the zero bound, told the conference, “we’re not going to have the bad
monetary policy of the ’70s again.”

** Market News International **

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