From Barron's Income Investing:
While most investors have focused on figuring out whether Federal Reserve Chair Janet Yellen is signaling a September rate hike in her speech at Jackson Hole Friday, John Bellows, portfolio manager at Western Asset, is more interested in what she had to say about the Fed’s “toolkit” of potential policy responses to a later economic slowdown.
In that section of her speech, pretty far along, she revealed something of a doozy: She suggested future policymakers explore “purchasing a broader range of assets.”
“We’ve seen the European Central Bank is buying corporate bonds recently and the Bank of Japan is buying equities,” he says. Bellows thinks Yellen is suggesting U.S. central bankers consider such possibilities. “We haven’t heard that before,” he says. “It is interesting.”
Here’s that key passage:...MORE
On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets. Beyond that, some observers have suggested raising the FOMC’s 2 percent inflation objective or implementing policy through alternative monetary policy frameworks, such as price-level or nominal GDP targeting. I should stress, however, that the FOMC is not actively considering these additional tools and policy frameworks, although they are important subjects for research.Bellows notes that Yellen’s speech makes it clear this is a subject for Fed research, not something it’s considering currently. Still it is “on the list of things she is open to.”...
