The Federal Reserve should continue to maintain its current $1,500-per-ounce gold and $1 million bond yields while keeping its gold yields low, a Treasury official said Wednesday.
The Fed’s decision last week to keep its bond and gold rates near historically low highs is expected to be reviewed again next week, when a committee of five Federal Reserve officials is expected, according to a Treasury Department official.
“We should keep our bond yields low,” Federal Reserve President Janet Yellen said at the Brookings Institution’s Federal Reserve Conference Wednesday.
“The bond yield is the only thing that is holding back inflation and keeping the stock market from rising.”
Treasury Secretary Steven Mnuchin echoed Yellen’s comments.
“It’s a mistake for the Fed to be in the business of keeping rates low,” Mnuchin said.
“We’re all about maintaining our inflation target, and that’s what we want to do.
The Fed should continue that work.”
Yellen said the Fed’s bond and bond-index-trading decisions are important because “we need to keep the market from overheating” and because “the longer we stay on this path, the more likely we are to have inflation.”
She added that the Fed should be doing more to foster “a strong dollar” that would help keep prices from falling and help stimulate economic activity.
“The longer the Fed stays on this policy, the stronger the dollar is going to be and the more we need to be selling our Treasurys and other assets to stimulate economic growth,” Yellen told reporters.
The Federal Reserve’s policy of keeping its bond yields lower and its bond-pricing moves to support the U.S. dollar are important to preventing the U,S.
government from being forced to increase its spending.
The bond-rate decisions are not new.
In the late 1990s, the Fed kept its rates at historically high levels and kept the U.,S.
treasury bond yields below 1 percent.
“It is important that the Federal Open Market Committee continues to follow a consistent policy of maintaining a stable, low-interest rate environment, and it is important to recognize that a high-interest-rate environment is not only an economic risk, but it is also potentially destabilizing,” Treasury Secretary Steven T. Mnuchin told Congress in 2003.
The central bank kept its interest-rate target at a record low of 1.75 percent during the Great Recession, and the Federal reserve raised its interest rate to 0.75 percentage points to fight inflation.
In a statement Wednesday, Mnuchin and Yellen both said they would continue to “pursue our goals of monetary stability, growth, and employment.”
The Fed will consider its next policy decisions in coming weeks, and Treasury Secretary Mnuchin’s testimony before the Senate Banking Committee Wednesday will provide more details.