The Federal Reserve cannot rule out additional monetary easing even if steady growth and "acceptable" inflation make it harder to justify fresh action, a top Fed official said on Monday.
Dennis Lockhart, president of the Atlanta Fed, said he expects the U.S. economy to grow between 2.5 percent and 3 percent this year, but noted risks remain from consumers' shaky financial position and Europe's unresolved banking problems.
Given that backdrop, Lockhart suggested he had not yet made up his mind about the potential need for another round of monetary stimulus, which would most likely take the form of additional bond purchases. Still, he made clear the bar remains high, particularly with growth having picked up in the fourth quarter.
"Steady even if unspectacular growth accompanied by inflation in the neighborhood of 2 percent justifies some reluctance to change, in either direction, the (central bank's) accommodative policy," Lockhart said in prepared remarks to a Rotary Club meeting. "At the same time, I think slow progress toward full employment justifies continuing consideration of whether more can and should be done."
The U.S. jobless rate has fallen significantly in recent months, dipping to 8.5 percent in December after spending most of the year close to 9 percent.
Lockhart said he expects continued progress on the employment front, but cautioned that it will be slow. One key reason is that consumers remain on shaky footing, leaving the prospect that spending will falter at some point unless incomes start to rise.
"Apparent stronger consumption at year-end was associated with falling savings rates, compensating for stagnating income growth," Lockhart said. "I question whether this consumer spending momentum will be sustained without a pickup in income growth."
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