Report: Fed Could Undertake Gradual Sale Of Assets In 2010

February 10, 2010 Wednesday

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Report: Fed could undertake gradual sale of assets in 2010

Simran Sanyal

St. Louis Fed President James Bullard says the Fed might contemplate a gradual sale of assets later in 2010 in an effort to reduce the size of its balance sheet.

In an effort to reduce the size of its balance sheet, the Federal Reserve might contemplate a gradual sale of assets later in 2010, Reuters reported Feb. 8, citing St. Louis Federal Reserve Bank President James Bullard.

Bullard told the news agency in an interview that policymakers are discussing the strategy of gradual sales, noting that markets would be disrupted if they are led to believe that the Fed was planning large-scale disposals of mortgage-backed securities.

"Maybe you get in the second half of 2010 or something like that, if things are going pretty well, maybe then you'd sell a little bit at that point and you'd try to see how the market reacts," Bullard said.

"Selling has more sympathy than you might think. It's more a question of timing and speed."

Bullard said he hopes that the Fed sells some assets before raising interest rates in order to normalize its bloated balance sheet to avoid inflation, but he acknowledged that not all Fed policymakers were likely to agree on this. He also added that the idea is not just to reduce the size of the balance sheet to pre-crisis level, but also to return it to holdings of mostly U.S. Treasury securities.

The news agency also reported that Bullard expects the economy to grow at an annual rate above 3% in the first half of 2010 and believes that unemployment might have reached its peak.

February 16, 2010