Tags: Lockhart | Federal Reserve | tapering | guidance

Fed's Lockhart: Tapering May Come Soon, but Fed Will Remain Accommodative

By    |   Friday, 22 November 2013 12:54 PM

The Federal Reserve will consider a tapering of quantitative easing at its next few meetings, but an actual tapering won't mean an end to the Fed's loose monetary policy, said Atlanta Fed President Dennis Lockhart.

"We're going to remain very accommodative for quite some time, in all likelihood a number of years," he told CNBC. "But the mix of tools that we use can change. And that's where the tapering decision comes in."

While economic growth has been disappointing in the second half of the year, "I think it [tapering] should be on the table at the coming meetings," Lockhart said. "I fully expect we'll be talking about it in December, January and March."

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The decision to taper will be made "when the economy is ready and when the market is prepared," he said. The economy grew 2.8 percent in the third quarter.

As for continuing accommodative policy, "there's a distinction between the rate policy, the targeting of the federal funds rate, and the asset purchases," Lockhart said.

"Those are two separate tools, and they're not tied together. When we make a move on asset purchases, it is not necessarily signaling that there's any change in the policy for the interest rate."

The Fed's target rate for fed funds now stands at a record low of zero to 0.25 percent, and the central bank has said it's unlikely to raise the target before unemployment falls to 6.5 percent. The jobless rate was 7.3 percent in October.

"We can put together a mix of tools that will preserve the very accommodative stance of policy for quite some time," Lockhart said.

He acknowledges that the Fed's quantitative easing carries some risks. "But I think up until now certainly, the net impact of the asset purchases has been positive. Certainly they have influenced long-term rates," he said.

The quantitative easing has pushed investment to riskier assets, which has helped the economy, Lockhart said. "Whether the policy is decisive is another question. But certainly it has supported what we've been able to achieve so far."

Job gains have averaged more than 200,000 per month over the last three months, he said. "So I think the benefits have outweighed the costs, certainly up until this point."

The Fed's balance sheet has bulged to $3.9 trillion thanks to all its asset purchases. "I do think there's a fair amount of uncertainty about the longer-term consequences of the balance sheet," Lockhart said.

But, "at the moment, I don't think we're in the danger zone. I think it's manageable. The exit will be manageable when the time comes." And the process may take years, he said.

In October, Fed officials said they may cut their $85 billion of monthly bond purchases "in coming months," according to the minutes of their meeting.

"It sounds like they’re moving closer to tapering," Sam Coffin, an economist at UBS Securities, told Bloomberg.

"There’s a lot more focus on their forward guidance, and a lot of that is because if they’re moving closer to tapering, they want to signal they’ll stay easy after the tapering has begun."

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The Federal Reserve will consider a tapering of quantitative easing at its next few meetings, but an actual tapering won't mean an end to the Fed's loose monetary policy, said Atlanta Fed President Dennis Lockhart.
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2013-54-22
Friday, 22 November 2013 12:54 PM
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