The Fed may have to do more to restore the flow of credit, Fed Vice-Chairman Donald Kohn said on Friday.
U.S. policymakers and central banker must remain "very flexible and
open to policy actions that had no precedent," Kohn said, pledging that
policy-makers would "continue to adapt our policies as necessary to
accomplish," a recovery of the financial system and consequently the
broader economy.
Nevertheless, many financial market sectors remain under "considerable
stress" and much has to be done before things return to normal, he said
during his speech at Wooster College in Ohio.
Furthermore, current monetary policies by the central bank, although
effective, could have important implications for inflation down the
road, he added.
As a consequence, the "FOMC is now providing extended projections of
inflation - along with growth and unemployment - in its quarterly
economic projections," he said.
He also said that the Fed is looking at programs to drain excess reserves once conditions in credit markets return to normal.
His comments come after a busy month for policy-makers, who have set up
a variety of facilities and programs to help stimulate the flow of
credit in the United States.
In March, the Fed set up the Term Asset-Backed Securities Lending
Facility to help financial entities purchase toxic debt from the
balance sheets of financial institutions while the U.S. Treasury
unveiled its Public-Private Partnership Investment Program with the
same goal.
The Fed has further undertaken a $300 billion purchase of U.S.
Treasuries to bring mortgage rates lower and launched a massive
purchase program of asset-backed securities.