“Further asset purchases by central banks can improve the economic situation we are now in,” Posen said in a speech in London today. He also said it is “time for the major central banks, including the Bank of England, to engage in purchases of assets other than government bonds.”
The Bank of England, which has bought 325 billion pounds ($505 billion) of government bonds since it began its quantitative-easing program in 2009, left the target for purchases unchanged this month. Posen was in a minority on the Monetary Policy Committee in March in voting to increase stimulus, before he switched his position in April.
Posen said in a footnote to his speech that his vote for no change to asset purchases in April and May “reflected my expectation that prior quantitative easing measures would be sufficient to give the British economy a good chance of returning to sustainable growth consistent with meeting the inflation target.”
“I was too optimistic about the other forces at work, including the impact of the” European Central Bank’s long-term loans and the effectiveness of the Bank of England’s QE program, he said. Minutes of this month’s MPC meeting will be published on June 20.
U.K. government bonds stayed lower after Posen’s remarks. The yield on the benchmark 10-year gilt increased three basis points, to 1.65 percent as of 3:31 p.m. London time. Two-year yields were one basis point higher at 0.25 percent.
Posen said the economic recovery has “petered out in the U.K. and elsewhere,” and the “risk of disorder in the euro area has reinforced the trends towards excessive reluctance to invest.” Spain requested as much as 100 billion euros ($125 billion) of European bailout funds last week to shore up its banking system.
The policy maker, whose term on the Monetary Policy Committee ends in August, said further asset purchases by central banks “should take the form of private sector securities for the time being.”
“This will allow more direct targeting of financial sector dysfunctions, and greater impact on liquidity preferring investors’ portfolios, thereby leading to greater impacts on confidence and on the real economy than a similar unit of QE on government bonds,” he said.
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