Yellen: Fed Mortgage-Backed Securities Buying Probably Helps Housing More Than Treasurys

By Victoria McGrane

Janet Yellen, vice chairwoman of the Federal Reserve's board of governors, said that the Fed's purchase of mortgage- backed securities probably has "a somewhat larger impact" on mortgage interest rates than its purchase of Treasury bonds.

Ms. Yellen, responding to a question about why the Fed is buying both mortgage-backed securities and Treasury debt, said the central bank sees both types of purchases as reasonably effective in pushing down long-term interest rates.

The Fed's purchase of mortgage-backed securities "seems like a particularly efficacious way of spurring the recovery by urging a faster recovery in the housing market," she said, because there appears to be some segmentation between the Treasury and mortgage-backed securities markets.

The Fed is currently buying $85 billion a month in Treasury debt and mortgage-backed securities in an effort to stimulate the economy.

Yellen. the Fed's No. 2 official, also said Monday that businesses likely aren't hiring more, despite strong corporate profits, largely because of a shortage of aggregate demand.

"Their sales aren't booming, and given the very slow growth in sales that they see, they don't find it necessary to expand employment at more than a very modest pace," Janet Yellen, vice chairwoman of the Fed board of governors, said during a question-and-answer session at a policy conference hosted by the National Association for Business Economics.

The Fed, through its easy-money policies, is trying to get demand growing more strongly, she said.

Other factors are contributing to lackluster corporate hiring, she said, including household belt-tightening following the trauma of the 2008 financial crisis. The slow jobs growth also reflects fiscal policy, which "has been much less stimulative than we've seen in past recoveries," she said. The slowdown in the global economy, particularly in Europe, has hurt global sales, she said.

Write to Victoria McGrane at victoria.mcgrane@dowjones.com

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  03-04-130940ET
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