Tarullo, Daniel

With short-term rates already about as low as they can go, the FOMC has also taken some unconventional measures to provide additional monetary accommodation. The combined effect of these monetary policies helped stabilize financial markets in 2009, hold deflation at bay in 2010, and support a modest recovery. But, in the absence of favorable developments in the coming months, there will be a strong case for additional measures.

Some have argued that monetary policy should do no more, and that the political branches of government should adopt fiscal or other policies to encourage increased economic activity and job creation. I certainly do not disagree that well-conceived policies by other parts of the government could produce gains in employment, investment, and spending. But the absence of such policies cannot be an excuse for the Federal Reserve to ignore its own statutory mandate…even when we know that monetary policy alone cannot solve all the economy's problems.

Within the FOMC and in the broader policy community, there has been considerable discussion of possible additional accommodative measures, from communication strategies such as forward guidance on the likely path of the federal funds rate to additional balance sheet operations. I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets.