Fed’s Rosengren: Fed needs wider QE mandate to deal with economic downturns

Boston Federal Reserve (Fed) President Eric Rosengren said on Friday, the Fed should be allowed to purchase a broader range of securities or assets if the coronavirus outbreak prompts it to launch a new round of big asset purchases to stimulate the economy.

Key quotes

If coronavirus causes Fed to reduce interest rates to near zero, US 10-year treasury rate could follow close behind.

Such a scenario means there would be little room for fed to lower rates through large purchases of long-term treasury securities.

Such a situation would raise new challenge for Federal Reserve policymakers.

Such an approach should require an explicit guarantee with US treasury to indemnify the Fed against losses.

Alternatively, the Fed could consider a facility to buy a broader set of assets.

Remains sceptical about using negative interest rates in the US.

US dollar reaction

Having hit the lowest levels since February 2019 at 95.72, the US dollar index is on a steady recovery mode despite the rout in the US equities, stocks futures and Treasury yields.

The USD index trades at 96.07, down 0.80%, at the press time.