Volcker Says Fed Bond-Buying Has No Effect on Inflation

Former Federal Reserve Chairman Paul Volcker
Former Federal Reserve Chairman Paul Volcker said, “Time is passing, it’s very important to protect Spain and Italy in particular. You wish they could be a little more decisive. When Europe has a problem, so does the world.” Photographer: Andrew Harrer/Bloomberg

Paul Volcker, former chairman of the Federal Reserve, said the U.S. central bank’s latest bond-buying program isn’t creating inflationary pressure.

“It’s not going to have a profound effect on the economy and it’s not going to have any effect on inflation in the short run,” Volcker said today at a forum sponsored by Bloomberg Link at the New York Athletic Club. “The basic situation is not an inflationary situation.”

The Fed has held its target interest rate near zero since 2008. It announced a third round of quantitative easing Sept. 13, committing to $40 billion in monthly purchases of mortgage-backed securities. Volcker, known for taming inflation in the 1980s, said the Fed can reverse its actions when the economy improves.

Volcker, 85, said he was confident that regulators will enact the proprietary-trading ban named for him, which is part of the 2010 Dodd-Frank Act overhauling financial-market rules.

“I don’t know what the new regulation will say but I think it’s less complicated than people are making it out to be,” said Volcker, who was interviewed in front of an audience by former Securities and Exchange Commission Chairman Arthur Levitt.

Dodd-Frank allows regulators to largely define the law’s provisions. Rules may be complete by the end of the year, regulators have said. Asked by a banker in the audience whether the Volcker rule would have been ineffectual in preventing the mortgage boom and bust, the former Fed chief defended the ban.

“That’s nonsense,” Volcker said. “Don’t tell me there was no speculation, for God’s sake.”

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