WASHINGTON/NEW YORK Top Federal Reserve officials said on Friday their decision not to reduce the pace of stimulus was wise given the crippling U.S. government shutdown, while admitting some recent troubles in getting their policy message across.
Fed Board Governor Jerome Powell said the central bank will maintain its ultra-easy monetary policy for quite a while longer, regardless of what decision it takes on when to change the level of its monthly bond buying campaign.
"What matters is the overall stance of policy, not the pace of asset purchases," Powell said.
"In all likelihood, policy will remain highly accommodative for quite a while longer - as long as needed to support an economy that still struggles to shake off the lingering effects of the financial crisis," he told the Institute of International Finance.
Eric Rosengren, the Boston Fed's dovish president, defended the U.S. central bank's decision to not scale back its pace of monetary stimulus, citing economic data and looming fiscal risks, although he admitted that the Fed may have fumbled its message.
The vote last month to hold steady on buying bonds at a monthly pace of $85 billion came as a big surprise to markets, sparking volatility and muddying market views about the outlook for interest rates in a way that policymakers had not intended.
"Given those data and risks, in my view continuing the asset-purchase program was warranted, and fully consistent with seeking to return to full employment and 2 percent inflation within a reasonable time frame," said Rosengren in prepared remarks to the Council on Foreign Relations in New York.
Still, Rosengren, who is a voter this year on the policy-setting Federal Open Market Committee, saw flaws in the way central bankers communicated their message.
"The experience of the past several months makes it clear that a data-driven policy that also considers the risks to our forecasts can be difficult to communicate, because the policy will necessarily change as we update our forecasts and risk assessments in the face of new economic data," he said.
Rosengren added that U.S. economic growth in the fourth quarter will likely take a hit from the government shutdown caused by fighting among U.S. lawmakers over the budget and a raising of the debt ceiling.
"We might have had a better outcome by the fourth quarter if we hadn't had this self-induced shock," he said.
Powell said the decision to stand pat had been a "close call" for him, echoing remarks by other members of the 19-member FOMC, adding that he would have been comfortable with a small reduction in bond purchases.
"However ... there were legitimate concerns about the strength of incoming economic data, the economic effects of tighter financial conditions and of tighter fiscal policy, and the prospect for disruptive events on the fiscal front," he said.
Powell said the Fed had been vindicated by the subsequent uncertainty created by budget gridlock in Washington.
"Events since the September meeting suggest that the concerns regarding fiscal matters were well founded," he said.