WASHINGTON A string of Federal Reserve officials on Tuesday indicated the central bank will soon offer further monetary stimulus to the economy, with one saying $100 billion a month in bond buys may be appropriate.
While internal differences on the unconventional policy are still evident, the consensus view at the Fed appears to be that the economy is weak enough to warrant further support, most likely through increased purchases of Treasury debt.
The U.S. economy is expected to have grown just 1.9 percent in the third quarter, a level considered too low to bring down unemployment. The debt purchases would help lower long-term interest rates in the hope of boosting demand.
Investors, who are parsing any and all Fed communication for clues on the central bank's next move, heard from a flurry of Fed officials on Tuesday.
Atlanta Fed President Dennis Lockhart's willingness to cite a specific dollar figure for purchases, one largely in tandem with market expectations, was seen as another hint that planning is actively underway.
"If we're going to pursue another round of quantitative easing, it has to be a large enough number to make a difference," Lockhart said in an interview on CNBC television.
"As a monthly number ($100 billion) is fairly consistent with what we did before, and so I think it would certainly be in the range of numbers one might consider ... but if you were talking about $100 billion as simply the overall program, I think that's too small," he said.
The Fed cut interest rates to near zero during the financial crisis and then bought around $1.7 trillion of mortgage-related and Treasury debt to further push down borrowing costs.
The Chicago Fed's Charles Evans and New York Fed chief William Dudley stuck to their views that monetary policy can and should do more to support the recovery, unless the economy improves.
Dudley said both inflation and employment are likely to remain below levels that are consistent with the Fed's mandate.
"Viewed through the lens of the Federal Reserve's dual mandate -- the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory," Dudley said, repeating an argument he made earlier this month.
The hints of forthcoming stimulus were not enough to soothe U.S. stocks, which were down sharply on the day after an interest rate hike in China sparked concerns about the outlook for global growth.
The prospect of further Fed easing, which helped push the dollar to a 10-month low, has drawn the ire of emerging market economies contending with a flood of capital as investors chase higher yields. The dollar surged on Tuesday after the surprise Chinese central bank interest rate increase.
The view that further stimulus was needed appears to be the core view at the central bank, but it is a view not unanimously held.
Dallas Fed President Richard Fisher said that while the economy is barely growing fast enough to create new jobs, the case for further monetary easing has not been made conclusively.
"The efficacy of further accommodation using nonconventional policies is not all that clear," he told the New York Association for Business Economics.
His counterpart at the Minneapolis Fed, Narayana Kocherlakota, also appeared skeptical about how much stimulus further bond purchases or quantitative easing (QE) could provide.
"My own guess is that further uses of QE would have a more muted effect on Treasury term premia," because markets are functioning much better now than in early 2009, said Kocherlakota.
On the other end of the spectrum, the Chicago Fed's Evans not only backed more easing but repeated his call for a price-level target, saying that there was little chance the U.S. unemployment rate, now at 9.6 percent, would fall below 8 percent by 2012.
Targeting a price-level would involve the Fed tolerating higher inflation for a while to offset a period of inflation below its comfort level.
The Fed has an informal inflation target of 1.7 to 2 percent. For the 12 months through August the core personal consumption expenditure price index, the Fed's preferred inflation gauge, was running at 1.4 percent.
Federal Reserve Governor Elizabeth Duke told the Money Marketeers of New York University that more easing at the Fed's November meeting is not a done deal. "A lot can change between now and the meeting," she said.
Dudley and Duke are permanent voters on the Fed's policy-setting panel, while Evans, Kocherlakota and Fisher move into voting slots next year. Lockhart won't have a vote on monetary policy until 2012.