August 30, 2012 / 1:15 PM / 5 years ago

UPDATE 2-'Close call' on more policy action - Fed's Lockhart

4 Min Read

Aug 30 (Reuters) - It will be a "close call" when U.S. central bank policymakers meet next month to decide whether to ease policy more, the head of the Federal Reserve Bank of Atlanta said on Thursday.

Dennis Lockhart, a centrist voting member on the Federal Reserve's policy-setting committee, said further stimulus would have some positive effect on the U.S. economic recovery, but cautioned the costs of such action are not altogether clear.

"If we were to see deterioration from this point - let's say persistence of job growth numbers that were well below 100,000 a month ... or if we were to see signs of disinflation that could signal the onset of deflation - then there wouldn't be much of a question about policy," Lockhart told CNBC.

"But now I think the policy question is, how much will you gain and of course what are the costs in the short and longer term," he said as an annual central bankers symposium kicked off in Jackson Hole, Wyoming, where Fed President Ben Bernanke gives a much anticipated speech on Friday.

The Fed in late 2008 slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades. Yet the recovery, especially in jobs, has been slow and economic growth stumbled this year, stoking expectations the central bank will act again.

Some economists expect Fed policymakers to unveil a third round of asset purchases known as quantitative easing, or QE3, at their Sept. 12-13 meeting.

"Further stimulus, if we were to put that in place, would have some positive effect," Lockhart said on Thursday, adding he was not "overly concerned" about the longer term costs of more action.

The policymaker argued it was possible for the Fed to push longer-term interest rates even lower than they already are, signaling that could be done by pushing into the future the date the Fed has targeted for keeping overnight rates near zero.

On Aug. 1, the central bank repeated that it expected to keep rates near zero at least through late 2014. Minutes from the meeting show that many Fed policymakers wanted to adjust that date at the time, but that the decision was put off to the September meeting.

Meanwhile, speculation the Fed would loosen policy further has been slightly dampened by a rebound in retail sales and a pick-up in jobs growth in July, a month in which nonfarm payrolls rose by 163,000. But the jobless rate edged up to 8.3 percent last month, and recent data on business spending and inflation supported more action.

Only 44 percent of fund managers in the Reuters global asset allocation poll published Thursday now think the Fed will announce QE3, down from 70 percent in the same poll last month.

Lockhart said it was a good time to "take stock" in the performance of the U.S. economy.

Gross domestic product growth has been around 2 percent throughout the recovery, he said, calling it "very modest" and not "likely to make great progress in bringing down unemployment." Inflation has been "well behaved" near 2 percent, Lockhart added.

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