November 17, 2010 / 6:04 AM / 7 years ago

Federal Reserve officials see need for full QE2

WASHINGTON (Reuters) - Federal Reserve officials said on Wednesday the U.S. central bank is likely to follow through on its entire $600 billion bond buying program based on an anticipated weak economic recovery.

“As the forecast looks right now it looks like we’ll be purchasing at this pace through the end of the second quarter to add up to $600 billion,” St. Louis Federal Reserve Bank President James Bullard told reporters on the sidelines of a conference.

The Fed announced a second round of extensive long-term bond buying in November to fire up tepid growth. The program has come under fire at home and abroad from critics who say the Fed is devaluing the dollar at the expense of trading partners, sowing the seeds of inflation and poaching on the turf of fiscal authorities.

Fed Chairman Ben Bernanke on Wednesday took defense of the bank’s actions to Capitol Hill, where he briefed skeptical lawmakers on the merits of the plan.

Data showing muted inflation for October is a concern and justifies the Fed’s actions to stimulate the economy, Bullard said. The 12-month rise in the underlying consumer price index was a record low 0.6 percent last month, the government said earlier in the day.

“That’s a low number and continues the disinflation trend that we’ve seen in 2010,” said Bullard, who will be a voter for one more scheduled meeting of the Fed’s policy-setting panel this year. Bullard is viewed as a centrist with dovish leanings on the spectrum of Fed officials, with doves most concerned about fostering growth and hawks intent on keeping inflation at bay at all costs.

“That disinflation trend is something that I‘m worried about and I think we should take action to turn around; that’s part of the reason I supported the second round of quantitative easing,” he added.

Another Fed official, Boston Fed President Eric Rosengren said the easing policy should boost jobs and lift inflation to healthier levels.

The program “should be broadly effective and helpful to the economy going forward,” said Rosengren, considered a monetary policy dove, in Providence, Rhode Island.

By 2012, he said, the Fed’s latest action will likely have trimmed half a percentage point from the U.S. unemployment rate, adding the equivalent of 700,000 jobs. The jobless rate was 9.6 percent in October.

Two Republican lawmakers on Tuesday called for rewriting the Fed’s mandate to make the central bank focus solely on inflation. Currently, the Fed is required to pursue both price stability and full employment.

Bullard called the debate over the Fed’s mandate interesting but declined to say whether he would support or oppose such a change.

“It’s interesting,” he said. “The ECB (European Central Bank) has a price stability mandate. ... The only thing a central bank can do in the long run is control the long run rate of inflation, so from that point of view it makes sense to have single mandate.”

Additional reporting by Svea Herbst-Bayliss; editing by Andrew Hay

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