WASHINGTON (Reuters) - The U.S. economy remains fragile but things would have to get a lot worse for the Federal Reserve to launch another round of monetary stimulus, Atlanta Fed President Dennis Lockhart said on Wednesday.
“I’m somewhat reticent to consider another round of quantitative easing at this time,” Lockhart told a press briefing on the sidelines of a conference sponsored by his bank.
“I view it as a policy that would respond more to a fairly dramatic negative change of direction in the economy,” said Lockhart, a 2012 voting member of the policy-setting Federal Open Market Committee.
Lockhart said a report showing only 120,000 new jobs were created in March was disappointing, but not enough to signal the economic recovery was going off track. He said he still expects U.S. gross domestic product to expand between 2.5 percent and 3 percent this year.
In response to a severe recession and financial crisis in recent years, the Fed has brought interest rates down to effectively zero and launched two major rounds of bond-buying to the tune of $2.3 trillion.
The Fed also decided last year to begin reinvesting maturing mortgage-backed securities in its portfolio. Asked if the central bank might reverse that policy, Lockhart said that would constitute a policy tightening.
“The question is has the time come to begin a process of tightening. I doubt that is going to be the case in June,” he said. June is the scheduled end-date for the Fed’s most recent effort to keep long-term interest rates low by selling short-term securities and using the proceeds to purchase long-term bonds, a process commonly referred to as Operation Twist.
Lockhart said he was not too worried that energy prices would up-end the economic rebound. He added that inflation was not a major concern either, pretty much tracking the central bank’s 2 percent target.
With regard to Europe, he said the threat of a deeper financial crunch had abated but not completely gone away. He cited Greece’s debt swap deal as having lent some calm to financial markets, but added a recent spike in Spanish borrowing costs suggests the crisis there - and the associated risk for the United States - is not over.
“I don’t think you can take the Europe-related risk of spillover off the table yet,” he said.
Editing by Chizu Nomiyama