Bloomberg News

Goodfriend Says Buying Mortgage Securities Could Spark Inflation

October 21, 2011

Oct. 21 (Bloomberg) -- A proposal by a Federal Reserve governor to resume purchases of mortgage-backed securities to bolster economic growth could lead to inflation, said economist Marvin S. Goodfriend, former research director at the Federal Reserve Bank of Richmond.

“It’s a risky venture” and “not advisable at this time,” Goodfriend said of the proposal made by Federal Reserve Governor Daniel K. Tarullo during a speech yesterday in New York. Goodfriend suggested Tarullo’s speech could have been a “trial balloon.”

A new round of so-called quantitative easing would need to be done on a “huge scale,” which would be “taking risks with higher inflation” and could ultimately weaken the economy, Goodfriend said. It’s like drinking too much wine, he said, “you can’t tell at the moment that you are overdoing it.”

Goodfriend, a professor of economics at Carnegie Mellon University, spoke today in an interview on Bloomberg Radio’s “Hays Advantage with Kathleen Hays.” He was attending a meeting of the Shadow Open Market Committee in New York.

(In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.)

--Editors: Paul Badertscher, Carlos Torres

To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net; Kathleen Hays in New York Khays4@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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