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Economist criticizes plan to resume purchases of mortgage-backed securities

October 21, 2011 06:30PM

A proposal by Federal Reserve Governor Daniel Tarullo to resume purchases of mortgage-backed securities as a means of boosting economic growth has come under scrutiny from economist Marvin Goodfriend, who said the strategy could ultimately lead to inflation, Bloomberg News reported.

“It’s a risky venture” and “not advisable at this time,” Goodfriend said during a speech yesterday.

The purchases, Tarullo said, would lower mortgage rates, which would in turn, encourage homebuying and mortgage refinancing, and aid economic recovery by freeing up money for consumers to spend on other goods and services.

Goodfriend argued, on the other hand, that a new round 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. “It’s like drinking too much wine, he said, “you can’t tell at the moment that you are overdoing it.” [Bloomberg] and [WSJ]