Former Fed chief Volcker signals concern over printing more dollars
Former Federal Reserve chairman Paul Volcker, an adviser to US President Barack Obama, signalled yesterday that some investors are concerned about the potential inflation risks of quantitative easing and record-low interest rates.
"It does worry people" that "we're going to create so much money that down the road we'll create inflation," Mr Volcker (83) said in response to a question about the global implications of quantitative easing at an event at the National University of Singapore.
"I don't think that's beyond the capacity of the central bank to deal with in the future. But they're going to have to deal with it."
His comments come as Fed policy makers meet today in Washington amid concern that economic growth is not strong enough to reduce a US unemployment rate close to 10pc. The Fed may announce a plan to purchase at least $500bn (€356bn) of long-term securities, according to economists.
US policy makers, pursuing unprecedented stimulus, have cut the benchmark rate almost to zero and bought $1.7trn (€1.2trn) in securities without generating growth fast enough to bring down unemployment from near a 26-year high.
Mr Volcker, chairman of Obama's Economic Recovery Advisory Board, said the Fed's debt buying in itself wasn't a concern as the US jobless rate, 9.6pc in September, had little chance of going down soon and the nation's economic problems could not all be cured in the short run. "It doesn't alarm me that they're thinking about buying treasuries," he said, referring to quantitative easing. "It's the volume which they choose to do and we don't know what that is," he said, adding that "if money is too easy for too long, we'll have more" asset bubbles.
As Fed chairman from 1979 to 1987, Mr Volcker raised interest rates to as high as 20pc to tame inflation, triggering a recession. "Dealing with inflation and inflation potentials is always a challenge," he said. "It's manageable but not easy."
Mr Volcker also commented on Mr Obama's changes to the financial system, saying they couldn't happen overnight and that Wall Street's attitudes hadn't changed, even as the idea that Mr Obama was anti-business was a "misconception."
As US policy makers considered measures to boost the economy against the backdrop of mid-term congressional elections, other central banks were seeking to curb inflation.
India raised borrowing costs yesterday for the sixth time this year, while Australia also unexpectedly pushed up interest rates.