Fed Debt-Buy Approach May Hurt Not Help, RBC’s Cloherty Says

A plan reported to be under discussion by the Federal Reserve to spur the economy while keeping a lid on inflation would drive up short-term interest rates, according to Royal Bank of Canada’s Michael Cloherty.

Fed officials are considering a program in which the central bank would buy long-term mortgage or Treasury bonds and effectively tie up the money by borrowing it back for short periods at low rates, the Wall Street Journal reported without citing sources. The approach would keep excess money out of the system and head off inflation, damping criticism by opponents of earlier Fed efforts to support the economy, the newspaper said.