* Fed hawk George urges taper to $70 bln in September
* Dove Evans says has open mind on September move
* Says will scrutinize evidence of durability of recovery
By Alister Bull and Pedro da Costa
OMAHA, Neb./GRENVILLE S.C., Sept 6 One of the
Federal Reserve's most hawkish officials urged the central bank
on Friday to curb bond buying to $70 billion a month when it
meets later this month, while a noted policy dove agreed that
the Fed could start to taper later this year.
Expectations for a modest cut in the U.S. central bank's
monthly bond purchases at the upcoming meeting were mostly
intact after a mixed August payroll report, released earlier on
Most economists at U.S. primary dealers expect the Fed to
ease back on stimulus after the Sept. 17-18 discussions,
according to a Reuters poll which showed such bets had firmed in
the last month.
Esther George, the Kansas City Fed's consistently hawkish
leader, said she favored trimming bond purchases from their
current $85 billion a month when policymakers next meet.
But Chicago Fed President Charles Evans, like George a voter
on the policymaking committee this year, stressed a move to
taper was not a done deal. He would weigh other evidence about
the durability of the economic recovery, although he said he
could be swayed toward a pullback.
"This is a period where it's even more important to go into
an FOMC meeting with an open mind," said Evans, referring to the
central bank's policy-setting Federal Open Market Committee.
"There's been cumulative progress on the economy. I can be
persuaded that there has been enough improvement," he told an
audience in Greenville, South Carolina.
Financial markets are focused on the policy meeting on Sept.
17-18 for a small start to a tapering in the purchases. The Fed
expects to halt these by mid-2014, when it forecasts that the
U.S. unemployment rate will be around 7 percent.
Evans, a monetary policy dove who has tended to downplay
inflation concerns, said it was disappointing to see labor force
participation fall again, a sign that the jobless rate could be
going down because of discouragement rather than hiring.
"The U.S. economy has a long way to go to return to healthy
normalcy," Evans said, adding the economy is still around 5
million jobs short of where it should be at this point.
In fact, data released by the U.S. government earlier on
Friday showed the unemployment rate creeping toward that target,
with a decline to 7.3 percent in August, a 4-1/2 year low.
However, firms only added 169,000 new jobs last month,
compared to a Reuters forecast for a 180,000 advance in the
crucial monthly non-farm payroll report, and economists said the
jobless rate drop was for the wrong reasons.
They cited a further retreat in labor participation, which
has dwindled to its lowest rate since 1978 as discouraged
workers gave up the search for employment.
TAPER TO $70 BILLION
Kansas City's George said that she also saw some good signs
in the numbers, citing an improvement in wages and the number of
hours worked, and reiterated her view that it was time to taper.
"An appropriate next step toward normalizing monetary policy
could be to reduce the pace of purchases from $85 billion to
something around $70 billion per month," George told a luncheon
of business and community leaders -- a level which would be in
line with the forecasts of primary dealers in the Reuters poll.
Furthermore, remaining Fed purchases should be split evenly
between Treasuries and mortgage-backed securities, she said.
"A decision to reduce the Federal Reserve's monthly asset
purchases would be appropriate at that (Sept. 17-18) meeting, as
would clearer guidance about the path forward. It is time to
begin a gradual - and predictable - normalization of policy."
George has dissented at every meeting since January in favor
of winding back the U.S. central bank's aggressive bond purchase
program. She worries that it could spur financial instability.