Financial Regulatory Forum

Fed mulling debt sales as U.S. economy recovers

By Pedro da Costa and Mark Felsenthal

WASHINGTON, Feb 17 (Reuters) – Several Federal Reserve policymakers want to begin selling securities relatively soon to cut back on the massive amount of cash they have poured into the financial system, the U.S. central bank said on Wednesday.

Minutes of the Fed’s latest policy meeting in January suggested officials remain positive about the economy’s prospects even as they worry about the impact of an elevated unemployment rate, which they see holding near the current 9.7 percent through 2010.

The minutes offered a window into the Fed’s thinking on how best to withdraw the extraordinary stimulus it has provided the economy, but also revealed substantial disagreement among officials on the timing and sequencing of exit steps.

To combat the worst recession and financial crisis since the 1930s, the U.S. central bank has cut benchmark interest rates to near zero and bought more than $1.5 trillion in government and mortgage bonds to pump money into the economy.

“Several thought it important to begin a program of asset sales in the near future to ensure that the Federal Reserve’s balance sheet shrink more quickly,” the minutes of the Jan. 26-27 meeting said.

U.S. Fed’s Hoenig backs bank break-ups where needed

By Mark Felsenthal

ATLANTA, Jan 5 (Reuters) – A top U.S. Federal Reserve official on Tuesday backed stripping banks of risky operations, suggesting growing support for breaking up large firms to prevent excesses that could undermine financial stability.

At a meeting of top economists here, Kansas City Federal Reserve Bank President Thomas Hoenig voiced support for former Fed Chairman Paul Volcker’s recommendation that banks not be allowed to sponsor hedge or equity funds.

However, also like Volcker, Hoenig stopped short of calling for restoration of Glass-Steagall banking laws that barred large banks from affiliating with securities firms and engaging in the insurance business.