It was his first speech on the economy in almost three years in office, but Daniel Tarullo did not pull any punches. The Federal Reserve Board governor, who tends to focus primarily on regulation, on Thursday called for the central bank to step up its purchases of mortgage bonds:
I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets.
More broadly, Tarullo made a strong call for further monetary easing, arguing quite dovishly that the recovery is still too weak for the central bank not to take further action.
There is need, and ample room, for additional measures to increase aggregate demand in the near to medium term, particularly in light of the limited upside risks to inflation over the medium term.
Tarullo’s rather unexpected push for “large-scale” MBS buys shows just how varied a range of approaches to unconventional monetary policy the Fed is considering as its ultra-easy monetary policy fails to spur growth rapid enough to put a dent in the 9.1 percent unemployment rate. Other doves on the Committee, like Eric Rosengren at the Boston Fed and Charles Evans in Chicago, are calling for more explicit policy targets that tie the path of policy to inflation and unemployment rates.