Tags: Fed | Easing | us | economy

Two Fed Officials Show Little Appetite for More Easing

Monday, 02 Apr 2012 12:46 PM

 

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Two Federal Reserve policymakers on Monday signaled little appetite for further monetary steps to stimulate U.S. growth in an economy that is gradually strengthening.

"It's not overwhelmingly robust," Dallas Federal Reserve President Richard Fisher said in an interview on CNBC television. "It's positive, it's moving in the right direction, it's gaining momentum."

Fisher said the Fed should not act too hastily to reverse its ultra-loose monetary policy stance, rather it should wait for more conclusive evidence that the recovery will endure.

Editor's Note: Study: Bernanke Intentionally Devalued the Dollar

"I think it's a little bit premature to talk about tightening here," he added.

Another top Fed official said global factors could be keeping U.S. inflation at higher levels than would normally correspond with the sluggish pace of U.S. recovery, pointing to his reluctance to support any further easing.

"The weighted average of the output gaps for advanced economies and emerging economies may be positive," he said in remarks in Beijing. "This may suggest upward, not downward pressure on U.S. inflation."

The Fed cut rates to near zero in December 2008 and has bought $2.3 trillion in bonds to boost growth. Recent news that hiring has been stronger than expected has led many analysts to project the Fed will have to raise interest rates earlier than the late 2014 date it has said is likely.

But Fed Chairman Ben Bernanke has said recently the relatively modest pace of growth is unlikely to lower the 8.3 percent unemployment rate quickly, so further stimulative action remains an option.

The Fed releases on Tuesday minutes from its March meeting, where analysts are looking for further insight on how actively the Fed is considering any further easing. The central bank meets next on April 24-25.

Fisher made clear he is opposed to more steps, unless the economy unexpectedly faltered, and said the timing of any rate rise will depend on how the economy develops.

"The question is ... will we go from job creation to growth in final demand. I think we are proceeding along that path, but I think we have a ways to go," said Fisher, who currently does not vote on policy.

In contrast to the cautionary note by Bullard on the price outlook, Fisher said there was no sign of "dramatic inflationary pressures despite the gas pump" because higher gasoline prices have been partly offset by lower prices for other items.

But Bullard raised questions about using the U.S. output gap to argue that inflationary pressures are absent domestically. In a globalized economy, policymakers need to consider global output, where there appears to be more constraints on capacity, he said.

In response to questions, Fisher made clear he felt the Fed has taken all the steps it should to stimulate the economy.

"You know where I come down, I think we have done enough," he said. "There is so much liquidity in the system, why would we add more, unless we had a crisis on our hands or something that is happening where we are seeing significant slippage in the economy?"

The best course for central bank policymakers is to be patient and monitor the strength of the recovery, Fisher suggested.

"I think we should sit, wait, watch and look, if the economy continues to improve, see how we will exit," he said.

Fisher said the Fed was not going to let inflation get out of control and said investors need to realize they can't count on an endless supply of monetary easing.

"A lot of investors ... have counted on us to provide the tailwind rather than just doing the hard work that one needs to do in order to ascertain underlying valuation," he said.

"I think the easy part for those that just rode on the jet stream of Federal Reserve accommodation is over. ... They should now go to work and do their analysis," he added.

Editor's Note: Study: Bernanke Intentionally Devalued the Dollar

 

© 2014 Thomson/Reuters. All rights reserved.

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