Treasury big defends Fed’s policy

The Fed on Wednesday stated for the first time it’s willing to step up its asset purchases — if the economic conditions warrant it. But despite the worrisome implications of the announcement, members of the Administration defended the central bank’s stepping in in the aftermath of the financial crisis in 2008.

“Instead of turning to austerity at our weakest point, we said let’s get growth back on track,” said Mary John Miller, under secretary for domestic finance at the U.S. Department of the Treasury. She was speaking at the 2013 Investment Company Institute General Membership Meeting, which took place Wednesday afternoon.
 
“The plan then, and still today, is to make sure we secure growth in the economy so we can take the steps we need to take to get our arms around our debt,” she said. “This increased the deficit and debt, but we are committed to fixing that.”

Based on the Fed’s announcement, it appears that the economy itself still needs some fixing. “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” the Fed said in the statement released on Wednesday. 
 
“In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives,” the central bank added.
 
The Fed has been purchasing $85 billion worth of Treasuries and mortgage-backed securities since December. Analysts had expected the Fed to begin winding down its purchases toward the end of the year and possibly ending them next year.

In the meantime, Ms. Miller thinks lawmakers should keep whittling away at the sizable gap in the government’s coffers. “We should continue to follow a course of finding a way to reduce deficits with a mix of revenue and spending cuts,” she told the attendees at the ICI gathering. “Today we’ve cut $2 of spending for every $1 of revenue increased.”