Fed should keep paring stimulus even if jobs growth weak: Lockhart

WASHINGTON Thu Mar 6, 2014 4:08pm EST

Dennis Lockhart, President, Federal Reserve Bank of Atlanta, takes part in a panel discussion titled ''Twist and Shout: The Limits of U.S. Monetary Policy'' at the Milken Institute Global Conference in Beverly Hills, California May 1, 2012. REUTERS/Danny Moloshok

Dennis Lockhart, President, Federal Reserve Bank of Atlanta, takes part in a panel discussion titled ''Twist and Shout: The Limits of U.S. Monetary Policy'' at the Milken Institute Global Conference in Beverly Hills, California May 1, 2012.

Credit: Reuters/Danny Moloshok

WASHINGTON (Reuters) - The Federal Reserve should continue to pare its massive bond-buying program even if a key jobs report due out on Friday falls short of expectations, a top Fed official said on Thursday.

"In my mind, unless we really fall off track in the economy pretty dramatically, I think the tapering program should proceed," Atlanta Federal Reserve Bank President Dennis Lockhart told Reuters in an interview, adding that he has "modest" expectations for the Labor Department's nonfarm payrolls report.

The Labor Department is expected to report on Friday that U.S. businesses added 149,000 jobs in February and the unemployment rate remained unchanged at 6.6 percent, according to a Reuters survey of economists.

That would be an improvement from the weak jobs gains of the prior two months. Recent weakness in the jobs market along with soft manufacturing and retail sales data has signaled that the economic recovery lost some momentum in the early part of 2014.

Lockhart attributed the weak data to the severe winter weather that has gripped much of the United States, and said he expects it to be well into the second quarter before the Fed has real clarity if the softness has a more persistent cause.

Lockhart, who does not have a vote this year on the Fed's policy-setting panel but who participates in policy discussions, is considered to be near the center of the Fed's policy spectrum, and his comments likely reflect the views at the core of the central bank.

The Fed has kept interest rates near zero since 2008 and has bought trillions of dollars of Treasuries and mortgage-backed securities to lower borrowing costs and boost investment and hiring.

But in recent months, as the economy and labor markets showed improvement, the central bank began reducing its monthly bond purchases and signaled that it plans to phase them out by late in the year.

Monthly purchases now total $65 billion, down from an initial $85 billion, and many economists expect the Fed to continue to trim the monthly purchases by $10 billion every six weeks or so.

Lockhart acknowledged that there could be conditions under which the Fed may need to pause or even ramp back up bond-buying, "but I think the bar is very high ... Certainly, as the balance sheet gets larger the potential costs grow, so I'm not ignoring that, but I don't think the tool should be taken off the table entirely."

Lockhart said he believes the Fed should soon retool its guidance on how long it will keep rates low. The central bank has for over a year vowed to keep rates near zero until unemployment falls to at least 6.5 percent.

"I would prefer a bit more of a qualitative framework ... that doesn't necessarily tie us to one number," Lockhart said. "I think the closer we get to 6.5 percent, the more it's necessary to refresh the guidance."

(Reporting by Jonathan Spicer; Writing by Ann Saphir; Editing by Paul Simao)

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