A top Federal Reserve official Friday would not rule out loosening the U.S. central bank's monetary policy further, but said conditions would have to worsen. "It's a very high bar," Atlanta Fed President Dennis Lockhart said in an interview on CNBC. "We have ...a very accommodative policy today."
Lockhart and St. Louis Fed President James Bullard, speaking in the same interview, both said they continue to expect economic growth to pick up in the second half of the year.
Government data earlier showed U.S. economic growth was weaker than has been previously reported, and indicated a slowdown was beginning even before the emergence of disruptions that are viewed as temporary, such as higher oil prices and supply chain problems after Japan's natural disasters.
The surprisingly downbeat report came on top of heightened tensions stemming from a political impasse over raising the U.S. government's debt limit. Failure to increase the government's ability to borrow could trigger a damaging debt downgrade and would raise the specter of an even more debilitating debt default.
The Fed cannot buy Treasury debt directly and would not be able to intervene to prevent a default, Bullard said.
"If it led to a generalized crisis we can come in and provide liquidity to markets as we did in 2008 and 2009," he said. "But the Fed doesn't have any ability to fix this situation."
Bullard is viewed as a centrist and Lockhart is seen as somewhat more of a growth-focused dove along the spectrum of Fed officials' views. The next meeting of the Fed's policy-setting Federal Open Market Committee is scheduled for Aug. 9, but neither official is a voting member of the panel.
The U.S. central bank in June ended a second round of quantitative easing and indicated it will watch developments in the economy for a while before taking any further steps.
Since the Fed has already cut interest rates to near zero and bought a cumulative $2.3 trillion in assets over two installments to boost growth, the central bank's choices are limited if it decides more stimulus is necessary.
Lockhart said if Fed policy-makers wanted to act, he believes lowering the interest rate the Fed pays banks for reserves they keep at the central bank would have too little impact.
Some analysts believe the Fed would be most likely to bolster its promise to maintain a large balance sheet or a long period of very low rates.
Bullard and Lockhart said that headwinds facing the economy in the first half of the year are already beginning to moderate and should allow the economy to grow more quickly.
"I think we're in better shape for better growth in the second half of the year," Bullard said.
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