Fed officials take wait-and-see approach on stimulus

MARIETTA, Ohio Mon Apr 2, 2012 5:30pm EDT

Richard Fisher, president of the Federal Reserve Bank of Dallas, answers a question from the audience after delivering the 2009 Albert H. Gordon Lecture about the current financial crisis at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts February 23, 2009. REUTERS/Brian Snyder

Richard Fisher, president of the Federal Reserve Bank of Dallas, answers a question from the audience after delivering the 2009 Albert H. Gordon Lecture about the current financial crisis at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts February 23, 2009.

Credit: Reuters/Brian Snyder

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MARIETTA, Ohio (Reuters) - Federal Reserve policymakers on Monday signaled little appetite for further monetary steps to stimulate U.S. growth in an economy that is gradually strengthening.

"With my current outlook, I think our policy stance is still the one best suited to foster steady gains in output and employment and to maintain stable prices," Cleveland Fed President Sandra Pianalto told a business group.

A voter on the Fed's policy-setting panel this year, Pianalto is viewed as a moderate aligned with a core group of policymakers, led by Chairman Ben Bernanke, who favor an activist approach to speeding up a sluggish recovery.

Dallas Fed President Richard Fisher said the economic recovery is gaining momentum and the central bank should not act hastily. A frequent critic of aggressive stimulus, he said in a television interview the Fed should watch and wait for more conclusive evidence that the recovery will endure before deciding its next move.

While Fisher saw no signs of "dramatic" inflationary pressures building, St. Louis Fed President Jame Bullard pointed to tight overall global capacity, which he said could be putting some upward pressure on U.S. inflation.

Their comments overall suggest there may be a high threshold for further Fed easing and that policymakers probably want to see a marked deterioration in the recovery before they would support firing another round of monetary stimulus.`

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 indicated.

But Fed Chairman Ben Bernanke said last week the relatively modest pace of U.S. growth is unlikely to lower the 8.3 percent unemployment rate quickly, and that further stimulative action would remain an option.

The Fed is scheduled to release minutes on Tuesday from its March meeting, which may offer further insight on how actively the central bank is considering additional steps to boost growth. The Fed's policymakers next meeting will be April 24-25.

FISHER - TOO EARLY TO TIGHTEN

Fisher, the Fed official known for backing a tighter monetary stance, cautioned that the Fed should not act too quickly to reverse its ultra-loose monetary policy stance.

"I think it's a little bit premature to talk about tightening here," Fisher, a non-voter this year, said on CNBC.

Bullard 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," Bullard said in remarks presented last week in Beijing and released on Monday. "This may suggest upward, not downward pressure on U.S. inflation."

That view is somewhat out of the Fed mainstream.

In its March policy statement, officials said that while gasoline prices may push inflation temporarily higher, inflation is likely to settle at or below the target level of 2 percent.

Bullard, also a non-voter, is seen as a centrist on the spectrum of Fed views, but has in recent months been persistently skeptical of the need for further monetary stimulus.

Dallas' Fisher made clear he is opposed to more steps, unless the economy unexpectedly faltered. He said the timing of any rate increase 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," Fisher said.

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.

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.

(Additional reporting and writing by Stella Dawson and Mark Felsenthal in Washington and Jonathan Spicer in New York; Editing by Neil Stempleman and Jan Paschal)

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