* Fisher: Fed should limit asset purchases
* Evans: keep rates low until joblessness hits 6.5 percent
* Evans: important to maintain $85 bln in monthly asset buys
By Andrea Hopkins and Sarah Marsh
TORONTO/BERLIN Nov 27 Deep divisions at the
Federal Reserve were on display on Tuesday, just two weeks
before the U.S. central bank's next policy-setting meeting, with
one top Fed official pushing for more easing, and another
The divide underscores the hurdles Fed Chairman Ben Bernanke
faces as he tries to win consensus among his fellow policymakers
on the central bank's sometimes controversial efforts to bring
down the nation's lofty unemployment rate, which registered 7.9
percent last month.
Charles Evans, president of the Chicago Federal Reserve Bank
and one of the Fed's most outspoken doves, said interest rates
should stay near zero until the jobless rate falls to at least
6.5 percent. Such a policy would carry "only minimal inflation
risks," and could boost growth faster than otherwise, he said.
Evans, who rotates into a voting seat on the Fed's
policy-setting panel in January, also said the Fed should step
up its program of quantitative easing in the new year to keep
its overall level of asset purchases at $85 billion a month for
most, if not all, of 2013.
But Dallas Fed President Richard Fisher, a self-identified
inflation hawk, said the U.S. central bank could get into
trouble if it does not set a limit on the amount of assets it is
willing to buy.
"You cannot expand without limits without horrific
consequences," he told reporters on the sidelines of the
conference organized by the Levy Economics Institute in Berlin.
"There is no infinity in monetary policy, we know that from the
In September the Fed launched an open-ended asset-purchase
program, kicking it off with a monthly $40 billion in
mortgage-backed securities and promising to continue or ramp up
the program unless the outlook for the labor market improves
Those purchases come on top of the $45 billion in long-term
Treasuries the Fed is buying each month under Operation Twist,
purchases that are funded with sales of a like amount of
"It's important to maintain the overall level of asset
purchases at $85 billion, at least for a time until we can see
whether or not we are doing better or things are going more
slowly, and we can adjust, depending on that assessment," Evans
told reporters attending a speech at the C.D. Howe Institute in
"I think we have to have discussion about what is
'substantial improvement.' Have we seen it? In my opinion, we
have not," he said.
Evans said he would judge the labor market as substantially
improved once he sees monthly job gains of a least 200,000 for
about six months, as well as above-trend growth in gross
domestic product that would lead to declines in unemployment.
"I would be very surprised if we could achieve that before
six months have passed, and I would not be surprised if it takes
until the end of 2013," he said.
Evans said the Fed should keep rates low well beyond that
date, until the jobless rate hits at least 6.5 percent, as long
as the inflation outlook for the next two to three years remains
below 2.5 percent. The Fed's inflation target is 2 percent.
Evans for the past year had called for low rates until the
jobless rate falls to 7 percent, as long as inflation does not
threaten to breach 3 percent.
On Tuesday Evans said he now views a 7 percent unemployment
threshold as "too conservative," and sees a 2.5 percent
inflation safeguard as appropriate, given that a higher
threshold makes some people "apoplectic" and is not needed in
order for the policy to work.
"We're much more likely to reach the 6.5 percent
unemployment threshold before inflation begins to approach even
a modest number like 2.5 percent," he said.
Fed policymakers have been ramping up discussions on
so-called thresholds - economic data points such as specific
unemployment and inflation rates - that would signal when the
central bank is likely to begin raising benchmark interest rates
from near zero.
Minneapolis Fed President Narayana Kocherlakota, Boston Fed
President Eric Rosengren and the Fed's influential vice chair,
Janet Yellen, have all expressed support for the idea.
In Berlin, Fisher also chimed into the debate.
"One option I believe we might pursue is to have a
definition of our unemployment target as well as our long-term
inflation target," he said, noting it would be difficult however
and setting an overall limit on asset purchases was preferable.
Fed Chairman Bernanke said last week that adopting numerical
thresholds for unemployment and inflation could be a "very
promising" step to develop the Fed's communication strategy, but
stressed that it was still under discussion.
On at least one issue, Fisher and Evans agreed: lack of
jobs, not high inflation, is the biggest problem for the U.S.
"I am not worried about inflation right now, I am worried
about an underemployed workforce in America," said Fisher.