* All eyes on when quantitative easing program will end
* U.S. central bank could taper asset purchases - Lockhart
* Lockhart raises concern over large Fed presence in markets
By Jonathan Spicer
NEW YORK, Jan 17 The Federal Reserve will very
likely need to continue its large-scale asset purchases into the
second half of this year, since a big improvement in the U.S.
labor market is unlikely to have happened by then, a top central
bank official said on Thursday.
"My own sense of this is that it is probably going to be a
struggle to see by mid-year a clear indication that the outlook
for the labor markets are in a new phase, and it's quite
optimistic," Atlanta Fed President Dennis Lockhart said at a
conference hosted by Bloomberg.
"So I would tend to believe that this bond purchasing will
need to continue longer into the year," he added. "Whether it
goes beyond that, I think, is a question that the (Fed policy)
committee will take up in trying to weigh efficacy, costs and
To speed up the tepid U.S. economic recovery, the Fed is
buying $45 billion worth of U.S. Treasury bonds and an
additional $40 billion of mortgage-backed securities per month
under its quantitative easing program, dubbed QE3.
Lockhart, a centrist monetary policymaker who does not vote
on policy this year, later told reporters the Fed could taper
its bond buying, and could also selectively reduce purchases of
either Treasuries or MBS, when the time finally comes.
Investors are intensely focused on when QE3 might come to an
Minutes from the Fed's December meeting revealed that
several policymakers expected to stop or slow the purchases well
before the end of this year, yet Fed Chairman Ben Bernanke and
other U.S. policymakers have said any decision will depend on
how well the economy is doing.
Lockhart said he cannot see where a strong acceleration of
growth would come from this year that could push U.S. economic
expansion beyond his 2 to 2.5 percent forecast.
Meanwhile, the central bank's balance sheet has more than
tripled to nearly $3 trillion since the financial crisis, as the
Fed's presence has grown in bond markets. U.S. Treasuries
touched a record high last year in large part due to the
Lockhart cautioned that the more the Fed's balance sheet
swells, the more the potential for unanticipated outcomes,
including the possibility that banks could retreat from markets.
"When a party (the Fed) is in control of such a large part
of the market, maybe it doesn't make sense for individual
institutions to deploy people and resources to participate in
that market," he suggested.
"Over a long period of time, you'd have to be concerned that
everyone who has got a Treasuries desk or a mortgage-backed
securities desk is beginning to wonder whether it makes sense to
continue to have that number of people on the desk," Lockhart
told the conference.
"You could lose over a period of time the real human
infrastructure it takes to have free markets in these
securities," he added.
Still, Lockhart said he was "very comfortable" that the Fed
could sell off its bonds and raise rates "in an orderly way."