Tags: Fed | Bond | Buying | Growth

Fed’s Lockhart ‘Skeptical’ More Bond-Buying Will Aid Growth

Tuesday, 29 Nov 2011 02:35 PM

Federal Reserve Bank of Atlanta President Dennis Lockhart said expanding securities purchases is unlikely to give a sufficient boost to U.S. growth, without ruling out the strategy or other easing options.

“I am skeptical that further asset purchases will produce much gain in terms of increased economic activity,” Lockhart, who votes on monetary policy next year, said in a speech in Atlanta. “I don’t believe further bond purchasing by the Fed is a potent policy option given the set of circumstances we currently face.”

Lockhart has supported the central bank’s use of unconventional policy instruments at its two recent meetings to revive a recovery that has left the unemployment rate stuck near 9 percent or higher for more than 30 months. The Federal Open Market Committee in August pledged to hold interest rates near zero until mid-2013, and in September the Fed announced it would swap $400 billion of short-term debt for longer-term securities in a bid to lower borrowing costs.

“That is not to say that such a policy action would not be powerful and appropriate in other circumstances,” Lockhart said of additional asset purchases. “I don’t think any option should be taken off the table.”

Lockhart, speaking at an economic outlook conference sponsored by the University of Georgia’s Terry College of Business, said that “at this time my notion of appropriate monetary policy” is “holding steady” the benchmark federal funds rate near zero and keeping the balance sheet “steady at current scale.”

Officials Differ

Fed officials have differed this month over whether to increase stimulus. Policy makers next meet Dec. 13.

New York President William C. Dudley said earlier this month there’s more the central bank could do to boost the economy, such as providing clearer guidance on how long interest rates will stay low or resuming asset purchases. The St. Louis Fed’s James Bullard said it would take a deterioration in the economy to warrant more easing because action risks a rise in inflation.

Lockhart said he expects an annual pace of 2.5 percent to 3 percent growth in the fourth quarter, compared with 2 percent in the third period, with “continued moderate growth” in 2012.

“Growth has picked up from earlier in the year,” he said. “Inflation appears to be settling into a range that I consider consistent with the FOMC’s price stability mandate. The economy is producing jobs on a net basis, just not at a pace and volume sufficient to materially reduce the unacceptably high rate of unemployment.”

Reinhart-Rogoff

Lockhart said one reason forecasters were wrong earlier in the recovery is they didn’t give enough weight to research by economists Carmen Reinhart and Kenneth Rogoff finding anemic growth for long periods after financial crises.

“It is now fairly clear that the Reinhart-Rogoff thesis is the appropriate one,” he said.

Some data in recent weeks have been better than forecast by economists. Consumer confidence climbed in November by the most in more than eight years as Americans grew more upbeat about employment and income prospects, the Conference Board’s index showed today.

Payrolls may increase by 120,000 workers in November after rising 80,000 in October, according to the median forecast of 59 economists in a Bloomberg News survey before a Dec. 2 report from the Labor Department.

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Federal Reserve Bank of Atlanta President Dennis Lockhart said expanding securities purchases is unlikely to give a sufficient boost to U.S. growth, without ruling out the strategy or other easing options. I am skeptical that further asset purchases will produce much gain...
Fed,Bond,Buying,Growth
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2011-35-29
Tuesday, 29 Nov 2011 02:35 PM
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