* Raskin: Fed easing actions "completely appropriate"
* Transmission of Fed efforts has been muted
* Bullard also says ultra-loose policy appropriate
(Adds that Kocherlakota did not discuss dissent)
By Mark Felsenthal
WASHINGTON, Sept 26 Two top Federal Reserve
officials on Monday defended the U.S. central bank's most
recent effort to boost growth, and one suggested further steps
may be justified.
The Fed last week announced it would weight its $2.85
trillion portfolio more heavily with longer term securities in
an effort to drive borrowing costs lower, warning of
"significant" downside risks to the economy,
Fed Governor Sarah Raskin and the president of the St.
Louis Federal Reserve Bank, James Bullard, both defended that
move as warranted given the U.S. 9.1 percent unemployment rate.
Raskin hinted she would support more action.
"Additional policy accommodation is warranted under present
circumstances," Raskin said at an event sponsored by the
University of Maryland's Smith School of Business.
Noting that aggressive Fed efforts to foster stronger
growth and bring the jobless rate down have been muted by
declines in home values and consumer reticence, she said the
Fed's policies are "completely appropriate" to help spur more
The comments from Raskin and Bullard, who called the Fed's
ultra-loose monetary policy "appropriate," are the first direct
remarks on monetary policy from Fed officials since the central
bank launched its latest program on Wednesday.
While support for the Fed's accommodative stance is to be
expected from Raskin, who is associated with the central bank's
employment-focused "doves," the endorsement by policy centrist
Bullard indicates solid support for the latest monetary easing,
despite the three dissenting votes the decision drew at last
One of those dissenters, Minneapolis Fed President Narayana
Kocherlakota, spoke in Chicago on Monday, but he did not
comment on the outlook for the economy or monetary policy.
In remarks at a seminar on sovereign debt, held at CME
Group Inc's headquarters, he argued that "a sufficiently tough
central bank" can control inflation regardless of the behavior
of the fiscal authorities, but would need to be ready to allow
the government to default in order to maintain that control.
RECESSION FEARS GROWING
The U.S. economy grew at less than a 1.0 percent annual
rate over the first half of the year, and forecasters think it
is plodding along at a sub-2.0 percent pace now. Employment
growth braked to a halt last month, raising recession fears.
Fears of a renewed downturn are growing around the world as
well. Reports in Europe and China showed private sector
business activity declined sharply this month as the euro zone
debt crisis and the stalling U.S. recovery hit confidence.
Despite heightened risks, the Fed's decision to stay active
in boosting economic growth is controversial and will get a
full airing in speeches scheduled over the course of the week,
with the other two dissenters scheduled to make public comments
in coming days.
Outside the Fed, Republican congressional leaders last week
had urged the Fed to stay on the sidelines, saying its
aggressive actions may have done more harm than good by risking
Raskin on Monday challenged politicians to contribute to
efforts to lowering the jobless rate. Both fiscal and monetary
policymakers should be considering a wide array of approaches
for fostering job creation, she said.
The Fed last week announced $400 billion in long-term bond
purchases matched with sales of the same amount of short-term
securities in a bid to push down longer-term interest rates. It
also said it would resume buying mortgage-related debt in an
effort to help depressed housing markets recover.
Even so, the Fed stopped short of an outright third round
of bond purchases. Bullard, speaking at a conference in New
York, said a fresh round of buying would be "a potent tool,"
suggesting the Fed may yet resort to that measure, although it
would likely draw loud objections from critics who see it as
setting the stage for a damaging surge in inflation.
The Fed cut benchmark short term rates to near zero almost
three years ago and has bought $2.3 trillion in longer term
assets to further stimulate economic activity.
Despite the three dissenting votes at last week's meeting,
a core group believes the central bank should do what it can to
prevent persistently high unemployment from slowing growth to
the point the economy slides back into recession.
Fed officials are discussing measures including giving
specific targets for unemployment and inflation that would
reassure markets that the Fed won't quickly change the course
of its ultra-loose policy.
Raskin said she would not support any policies that would
permit inflation that is higher than what the Fed believes is
optimal -- 2.0 percent or a bit less.
"Raising inflation or raising inflation expectations ... is
something I would be quite leery of," she said on Monday in
response to questions after her speech. "Keeping inflationary
expectations anchored is in my mind extremely important."
Bullard similarly said a higher target for inflation would
not help achieve the Fed's goal of stronger growth.
(Additional reporting by Kristina Cooke in New York; Editing
by Leslie Adler)