May not need more bond-buying post QE2: Fed's Evans

CHICAGO Fri Mar 25, 2011 11:33am EDT

CHICAGO (Reuters) - The Federal Reserve should complete its current round of bond-buying, designed to support the recovery, and likely does not need to extend it, Chicago Fed President Charles Evans said on Friday.

"Following through on that to the tune of $600 billion, like we've said, I think is appropriate," Evans told reporters in a joint interview at the regional bank's headquarters. "I personally don't see as many needs for a further amount, as I probably thought last fall."

Coming from one of the Fed's more dovish policymakers, Evans' statement suggests the Fed is unlikely to continue pouring new money into the economy after June, when the current round of bond-buying is slated to end.

In an hour-long, wide-ranging interview over pancakes and sausages, Evans said the economy was improving every month, inflation is stabilizing and moving upward, "in a direction that I think it needed to be," and the decline in the unemployment rate -- to 8.9 percent in February, from 9.8 percent in November -- was "genuine."

But Evans also suggested that the Fed would not quickly move to tighten its extraordinarily loose monetary policy, and would likely try to keep its balance sheet steady once active bond-buying stopped.

That would require the Fed to continue to reinvest proceeds of maturing securities in new purchases, as it has been done for some months now.

"It is natural to expect there would be some period of time between when the $600 billion is completed and an assessment in the change of the trajectory," he said. After a period of what could be some months, he said, the Fed could stop reinvestments, a "modest step" toward tightening that probably not be followed quickly by other steps unless the economy was outpacing expectations.

He said he expected the recent rise in headline inflation to be transitory and expressed little concern that inflation will take hold.

Recent economic data has been stronger than anticipated, and he said he now expects the unemployment rate to fall to 7.5 percent by the end of 2012. He previously forecast 8 percent.

Still, noting unemployment remains high by historical standards and inflation is low, he defended the need for continued policy accommodation.

"I disagree completely with any characterization that these policies are dangerous," he said. "I think they are sound monetary policy decisions."

(Reporting by Ann Saphir; Editing by Padraic Cassidy)

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