Three Federal Reserve regional bank presidents voiced diverging views on whether to end a plan to buy $600 billion in bonds early or be open to doing more, while signaling little pressing need for additional purchases.
Dallas Fed President Richard W. Fisher said today he might vote to cut short the bond buying before the scheduled end in June if he deems it to be “counterproductive.” Atlanta Fed President Dennis Lockhart said he is “very cautious” about further asset purchases, while not ruling out the possibility. Charles Evans, president of the Chicago Fed, told CNBC he believes the hurdle for altering the plan is “pretty high.”
Policy makers are set to meet in Washington on March 15 as economic data over the past month indicate their policies are helping to revive growth and reduce unemployment. Fed officials including Charles Plosser, president of the Philadelphia regional bank, have favored an abrupt end to the purchases of Treasurys, rather than a gradual pullback beyond June.
Treasury markets are “so deep and liquid that there doesn’t seem to be a need” to taper the purchases, said Evans, 53, who votes on the Federal Open Market Committee this year. “I wouldn’t be surprised that if we decide to end it, we just end it.”
The Standard & Poor’s 500 Index has gained more than 9 percent since Nov. 3, when the Fed announced its second large-scale round of asset purchases. Central bankers are about half way through their bond buying program, known as QE2 for the second round of so-called quantitative easing. The Fed ended a $1.7 trillion program in March 2010.
Joblessness in the U.S. unexpectedly fell to 8.9 percent in February, according to a March 4 report from the Labor Department. The rate fell for a third straight month to the lowest level in almost two years as employers boosted payrolls by 192,000 amid growing confidence in the expansion.
The economy grew at a 2.8 percent annual rate in the fourth quarter, up from 2.6 percent in the previous three months, according to figures from the Commerce Department. The economy, excluding inventories, expanded at a 6.7 percent pace, the most since 1998.
“The liquidity tanks are full, if not brimming over,” Fisher, an FOMC voter this year, said at the Institute of International Bankers Annual Washington Conference. “The Fed has done its job. What is needed now is for business to be incentivized to commit that liquidity to creating American jobs.”
The regional bank chief reiterated that he would vote against extending or enlarging the $600 billion program “barring some frightful development.” If the plan proves to be “counterproductive,” Fisher said he will “vote to curtail or perhaps discontinue it.”
Middle East Turmoil
Lockhart said in a speech in Arlington, Virginia, that the central bank shouldn’t rule out additional purchases because turmoil in the Middle East risks causing a slowdown in the U.S.
“With the information I have today, my first inclination is to be very cautious about extending asset purchases after June,” he said. “Given the emergence of new risks, however, I prefer a posture of flexibility as regards policy options.”
Lockhart’s comments echoed Fed Chairman Ben S. Bernanke, who told Congress last week that economic conditions continue to justify holding the central bank’s benchmark interest rate near zero. The chairman also didn’t rule out expanding purchases to keep stimulating the economy.
A survey of economists released today by the National Association for Business Economics found 71 percent expect the Fed to raise its target interest rate over the next year.
Lockhart told reporters after his speech that a third round of large-scale asset purchases might be needed in the event of another downturn. “I want to remain open to whatever has to be done or needs to be done at a given time,” Lockhart said.
The Fed has bought $397.6 billion in Treasury securities since Nov. 12 under plans to purchase $600 billion of government debt through June and reinvest proceeds from maturing mortgage debt.
The hurdle for altering the Fed’s current plan is “pretty high,” and a tapering of the purchases is unlikely, Evans said in a CNBC interview.
“It looks more and more to me like $600 billion is a good number,” the Chicago Fed president said. “We’re going to continue to need short-term interest rates to be low for an extended period of time.”
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