Raskin Says Fed to Debate Benefit of New Bond Buying Plan

Federal Reserve Governor Sarah Bloom Raskin said the Fed next week will debate whether to begin a program to speed economic growth and reduce unemployment through large-scale purchases of bonds.

Another round of Treasury purchases “is something that will be debated in the upcoming FOMC meeting,” Raskin said yesterday in response to audience questions after a speech in Boulder, Colorado, referring to the Federal Open Market Committee. “It will be debated against the backdrop of the dual mandate” to ensure stable prices and maximum employment.

The FOMC plans to meet July 31-Aug. 1 as reports point to sputtering growth in the world’s largest economy. The Fed’s options to promote faster job gains include expanding its balance sheet, reducing the interest rate paid to banks for reserves held at the central bank and altering communications on the outlook for interest rates, Chairman Ben S. Bernanke said in testimony to Congress last week.

“The road back has been a slow one,” Raskin said at the Graduate School of Banking at Colorado.

The Fed has held its benchmark interest rate to near zero since December 2008 and purchased $2.3 trillion in bonds in two rounds of quantitative easing. It has also extended the duration of the average bond on its balance sheet through a program known as Operation Twist.

Government bond yields tumbled yesterday to a record low as investors grew concerned the deepening debt crisis in Europe would further weigh on an already-slowing U.S. economy. The yield on the 10-year Treasury note hit 1.396 percent, while government bond yields in the U.K. fell to record lows as well. The Standard & Poor’s 500 Index (SPX) dropped 0.9 percent to 1,350.52.

Declining Outlook

Reports since the June 19-20 FOMC meeting have signaled a deteriorating economic outlook, with the Fed’s Beige Book business survey noting “tepid” employment growth and cooling manufacturing and retail sales in some regions. The report, released July 18, gives central bankers an anecdotal look on the economy before they next meet in Washington.

Raskin, formerly Maryland’s chief banking regulator, was appointed to the Fed in 2010.

To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net