Published: Thu, 26 Mar 2009 19:49:42 +0100

Plosser Says TALF Could Expose Fed to Financial Risk

(CEP News) - Federal Reserve Bank of Philadelphia President Charles Plosser said Thursday the Federal Reserve could be exposed to credit risks from the Term Asset-Backed Securities Loan Facility (TALF) program.

He said legacy assets purchased under the program pose the worst risk to the Fed, and that the outcome will depend on how the TALF is managed.

He defended the Fed's decision to buy long-term Treasuries, saying the expansion of its balance sheet supports the economy and prevents deflation. He said that by adding Treasuries to the balance sheet, the Federal Reserve has more room to eventually exit the purchase program, rather than just issue bills.

Unlike his Fed counterpart Jeffrey Lacker earlier today, Plosser said he is not concerned about inflation in the coming quarters, despite the decision to print money. However, he said that while price stability isn't an issue, the economic outlook for the United States is "pretty ugly."

By Megan Ainscow, mainscow@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca