Meltzer Says Further Fed Easing Could Alarm ‘Bond Market Hawks’

The Federal Reserve’s efforts to boost the economy by expanding its balance sheet probably won’t succeed while increasing the chances of higher long-term inflation, said Allan Meltzer, a historian of the central bank.

“Sooner or later the bond market hawks are going to say, ‘How are they going to get rid of that $2 trillion of excess reserves?’ and the answer is they don’t know,” Meltzer, a professor at Carnegie Mellon University in Pittsburgh, said today in an interview on Bloomberg Television’s “In the Loop with Betty Liu.”

“They can’t do much about the near term but they can do a lot about the longer term. But they ignore that,” said Meltzer, author of a history of the Fed.

The FOMC plans today to release the minutes of its Sept. 21 meeting. At that meeting, the Fed said it was “prepared to provide additional accommodation to support the economic recovery” and that the level of inflation was “somewhat below” the Fed’s goal of stable prices.

Meltzer said he opposes any move by the Fed to increase the amount of reserves in the banking system.

“We don’t have a monetary problem, we have 1 trillion or more in excess reserves so it’s literally stupid to say we’re going to add another trillion to that,” Meltzer said last month.

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