Federal Reserve Vice Chairman Stanley Fischer said the central bank's massive asset purchases were a "critical means" for stimulating the economy with interest rates near zero, though they still may pose a risk.
"Asset purchases over more recent years have provided meaningful stimulus to the economy, and continue to do so," Fischer said Friday in a speech prepared for delivery in New York. "With the Fed continuing to hold these securities, they should apply downward pressure on rates for some time."
The Fed more than quadrupled its balance sheet since 2008 to a near-record $4.49 trillion by amassing Treasury and mortgage securities in three rounds of purchases. Policy makers are holding on to the assets as they debate when to raise the main interest rate for the first time since 2006, with most officials predicting an increase some time this year.
Still, "a number of potential costs" might be associated with the Federal Open Market Committee's bond buying, which combined with low rates "could pose risks to financial stability," Fischer said.
"Despite these potential costs, we think that asset purchases have had a meaningful effect in promoting economic recovery and helping to keep inflation closer to the FOMC's 2 percent goal than would otherwise have been the case," Fischer said at the 2015 U.S. Monetary Policy Forum held by the University of Chicago Booth School of Business.
Earlier today, New York Fed President William C. Dudley said in a speech that he sees reason for caution on how soon or how quickly to raise rates. Dudley also repeated his view that raising rates too soon poses greater risks to the economy than lifting them too late.
The next FOMC meeting is scheduled for March 17-18.
