A top Federal Reserve official said on Tuesday further monetary easing by the central bank must be hefty enough to spur recovery and securities purchases of $100 billion a month could be in order to achieve the necessary impact.
Three Fed officials on Tuesday made the case for further easing and bolstered perceptions a consensus has grown at the central bank to launch a fresh round of large-scale asset purchases at a meeting on November 2-3.
Atlanta Federal Reserve Bank President Dennis Lockhart, a policy centrist who has grown increasingly worried about deflation risks, repeated that he was leaning toward further easing and offered the most specific outline of the possible scope of further central bank bond buying.
"If we're going to pursue another round of quantitative easing, it has to be a large enough number to make a difference," Lockhart said in an interview on CNBC.
"As a monthly number ($100 billion) is fairly consistent with what we did before, and so I think it would certainly be in the range of numbers one might consider ... but if you were talking about $100 billion as simply the overall program, I think that's too small," he said.
The Fed cut rates to near zero in December of 2008 and followed that with $1.7 trillion in purchases of Treasuries and mortgage-related debt, a program that concluded in March.
However, the Fed acknowledged over the summer that the U.S. economic recovery could need further help and many analysts expect officials to buy up a further $500 billion in U.S. government debt.
Prospects for further Fed easing have weakened the U.S. dollar in recent weeks and caused worry in emerging markets that their soaring currencies will make exports uncompetitive.
Comments from two other Fed officials belonging to the camp that has consistently favored easing added to signs the Fed was close to acting.
"Viewed through the lens of the Federal Reserve's dual mandate — the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory," said New York Fed President William Dudley, reiterating an argument he made earlier this month.
Chicago Fed chief Charles Evans also backed more monetary stimulus and repeated his call for a price-level target, saying that there was little chance the U.S. unemployment rate, now at 9.6 percent, would fall below 8 percent by 2012.
Dudley is a permanent voter on the Fed's policy-setting panel, while Evans moves into a voting slot next year. Lockhart won't have a vote on monetary policy until 2012.
BENEFITS OUTWEIGH RISKS
Lockhart said more easing was warranted despite the risk the Fed's already bloated portfolio could pose a dangerous inflation risk when the recovery eventually gains traction.
"I think the risks associated with it are acceptable," Lockhart said. "Quantitative easing will help improve a recovery that is going very slowly and improve the trajectory of the economy overall."
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