May 16 - The fight over whether to keep buying bonds or curtail purchases heats up as Federal Reserve officials speak out and inflation drops out of sight. Fred Katayama reports.
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The line between the doves and the hawks at the central bank are becoming clearer now. Inflation is barely visible now and well below the Fed's target of 2 percent. Hawks like Richmond Fed President Jeffrey Lacker, who has criticized the Fed's monthly bond purchases, warns it's just down the road.
SOUNDBITE: JEFFREY LACKER, RICHMOND FED PRESIDENT (ENGLISH) SAYING:
"The low current readings we see on inflation down close to 1 percent I think are transitory. Well-contained inflation is the most fundamental, important fundamental the Fed can make to the growth process."
Fed Governor Sarah Raskin stuck to her dovish stance today, saying the central bank should keep easing in light of the low, 12-month inflation rate of 1 percent.
SOUNDBITE: SARAH BLOOM RASKIN, GOVERNOR, FEDERAL RESERVE (ENGLISH) SAYING:
"Inflation is expected to remain close to, or a little below, the Committee's objective of 2 percent, consistent with ongoing slack in the labor market and well-anchored inflation expectations. In light of this outlook, it's appropriate for the Fed to continue to pursue a highly accommodative monetary policy."
Inflation looked even more distant today as consumer prices fell by the most in more than four years in April, down four-tenths of a percent. And after stripping out food and energy, core inflation was flat, up just one-tenth of a percent.
Earlier this month, the Fed said it could slow or speed up its purchases of bonds depending on changes in inflation and the job market. Most private economists say the Fed may begin to cut back its purchases toward the end of the year as economic growth bounces back.
But San Francisco Fed President John Williams says the central bank could start cutting back as early as the summer.
Bond investor Jeffery Gundlach doesn't see inflation in the cards, so don't expect the central bank to stop the printing press.
SOUNDBITE: JEFFREY GUNDLACH, CEO, DOUBLELINE CAPITAL (ENGLISH) SAYING:
"There's probably a bubble in central banking. That's where the bubble is right now. We're drowning in central banking right now, and that's where the bubble is. But it's not ending anytime. It's not ending anytime soon until there are some negative consequences."
Former Dallas Fed President Robert McTeer says that while the Fed presidents are split, the majority still back chairman Ben Bernanke's accommodative policies. He says the Fed doesn't see the decline in inflation as a deflationary threat for now.
The market will get more clues on the Fed's view on inflation and monetary policy when Bernanke testifies before Congress next week.
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