Former Federal Reserve Chairman Alan Greenspan said on Friday that he sees few results from the US central bank's "quantitative easing" program and is not convinced a fresh intervention in bond markets will help.
"I find it very difficult to find any significant impact as yet from QE1 and QE2," Greenspan told reporters after a public forum in Mexico's capital city, referring to a central bank policy in which the Fed bought debt assets to try and lower borrowing costs.
The Fed cut benchmark rates to near zero almost three years ago to pull the economy out of a sharp recession and has promised to keep them low through mid-2013. It has also bought $2.3 trillion worth of longer-term securities to fuel faster expansion and prompt banks to lend.
But banks are still unwilling to make loans, Greenspan said, adding that "until we begin to see an active relending of excess reserves (held by banks), we don't get much from expanding the monetary base." One option for further easing would be for the central bank to encourage lending by lowering the rate it pays banks for excess reserves they hold at the Fed.
The Fed could also shift its $2.8 trillion balance sheet toward holdings of more longer-term securities. The point of such a move would be to "twist" down interest rates for longer maturities, potentially spurring mortgage refinancing and other activity that depends on longer-term interest rates. But Greenspan said he also was not convinced of the value of a so-called "operation twist."
"The results were quite mixed," Greenspan said of the last time the Federal Reserve tried such a program. "It is unclear to me whether or not it would work at this stage."
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