Fed may need to buy more mortgage bonds: Williams

SAN RAMON, Calif. – The U.S. central bank may need to buy more bonds to bolster a housing market whose distress is at the heart of a “frustratingly slow” economic recovery, a top Federal Reserve official said on Wednesday.

“Looking ahead, we may still need to provide more policy accommodation if the economy loses momentum or inflation remains well below 2 percent,” San Francisco Fed President John Williams said at the Bishop Ranch Forum, a business group in this San Francisco suburb. “Should that occur, restarting our program of purchasing mortgage-backed securities would likely be the best way to provide a boost to the economy.”

Williams, a voting member this year on the Fed’s policy-setting panel, is on the dovish end of a policy spectrum, more concerned with the harm wrought by continued high unemployment than with the threat of inflation.

The Fed is increasingly pinpointing housing as the key to the nation’s recovery, and Williams is the second regional Fed president inside of a week to make the case for more monetary policy accommodation through the purchase of more mortgage-backed securities.

Chicago Fed President Charles Evans last Thursday said he would be “aggressive” in seeking more help for the economy through the purchase of such bonds.

Further bond purchases by the Fed would amount to a third round of quantitative easing, a controversial move that drew criticism both at home and abroad the last time the Fed took that path.