–Inflation To Remain Around 2% ‘For Years to Come’
By Yali N’Diaye
WASHINGTON (MNI) – The latest round of quantitative easing focused
on mortgage-backed securities purchases should help lower mortgage
rates, and therefore support the housing sector in a still struggling
U.S. economy, Cleveland Federal Reserve Bank President Sandra Pianalto
While monetary policy actions can pose potential risks, Pianalto
does not see inflation as a problem, projecting it to remain in the
range of 2% “for years to come.”
“It is possible that these purchases will yield somewhat smaller
interest rate declines and may not stimulate economic activity as much
as past large-scale asset purchase programs,” Pianalto said in prepared
remarks to the Miami University Farmer School of Business.
“Nevertheless, by purchasing additional mortgage-backed securities,
this program should put some downward pressure on home mortgage rates,’
Noting the economic recovery has been “frustratingly slow,” she
added that such “lower rates should provide further support for the
housing sector by encouraging home purchases and refinancing.”
“In this way, monetary policy might help to stabilize housing
prices, reduce mortgage payments, and generally bolster consumer
confidence,” she continued.
“Rising confidence, in turn, should support more spending for goods
and services, and, over time, lead to more employment,” she concluded.
The Federal Open Market Committee announced last week that in
addition to its maturity extension program, it will buy $40 billion in
mortgage-backed securities a month until it sees a significant
improvement in the labor market. It also pushed out its forward guidance
— how long its expects interest rates to remain close to zero — to
mid-2015 from late-2014.
That being said, Pianalto stressed the relation between job
creation and monetary policy is not “straightforward,” stressing that
the Fed policy cannot directly create jobs, just the conditions to help
In particular, a “more robust” economic recovery requires to
address the U.S. fiscal challenges as well as the situation in Europe,
both beyond the Fed’s control.
Besides, monetary policy actions are not without posing risks, with
some citing the potential for inflation to become a problem.
That is not Pianalto’s view, as she expects inflation to remain
around 2% in the coming years.
That being said, “our policy process is designed to keep a sharp
focus on inflation and inflation expectations, and we will act to head
off any emerging threat to price stability,” she said.
** MNI Washington Bureau: 202-371-2121 **