WASHINGTON (AP) — Divisions within the Federal Reserve over how to pump up the economy and lower unemployment came into sharper view Wednesday.
Three Fed officials squared off in competing speeches over how much help would come from one likely next step — buying more government debt.
Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, argued that such an effort may not help the economy much. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, made a similar point.
The Fed delivered a strong signal last week at its meeting that it was prepared to act if the economy weakened. High on the list of unconventional tools is buying more government debt, known as quantitative easing.
The goal is to force down rates on consumer and businesses loans even more to get Americans to boost their spending. Doing so would help the economy.
Because financial markets are in better shape now than during the crisis, the difference between the rates on supersafe Treasury securities and rates on other consumer and business loans has narrowed.
Mr. Plosser said, “Monetary policy is not a magic elixir that can solve every economic ill.”
However, Mr. Rosengren said that buying more government debt could benefit the economy and, therefore, should be considered.
“It is important that policymakers be open to implementing policies” that are aimed at lowering unemployment and preventing inflation from getting too low, which could put the country at risk of deflation, he said in a speech in New York.
Many economists believe the Fed is likely to announce action when it wraps up a two-day meeting on Nov. 3, the day after the congressional midterm elections.
Although the Fed has yet to coalesce around a specific plan, one idea put forward by James Bullard, president of the Federal Reserve Bank of St. Louis, is gaining closer scrutiny.
Under Mr. Bullard’s approach, the Fed initially would buy a moderate amount of government bonds — perhaps in the range of $100 billion or less. After that, the Fed would review the economic climate at each meeting and decide whether it needs to buy more government bonds to bolster the recovery.