June 6, 2012 / 12:25 AM / 7 years ago

Two Fed officials cool to more easing

ST.LOUIS/NEW YORK (Reuters) - Two top Federal Reserve officials suggested on Tuesday that the U.S. central bank is not preparing to ease monetary policy at a meeting later this month as the economic outlook has not deteriorated to the point where action is warranted.

A picture illustration shows U.S. 100 dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

Both James Bullard, president of the St. Louis Federal Reserve Bank, and Dallas Fed President Richard Fisher were cool to the idea of new monetary stimulus in response to last month’s disappointing U.S. jobs growth and boiling financial tensions in Europe.

“The outlook for 2012 has not changed significantly so far,” Bullard told a conference in St. Louis. “A change in U.S. monetary policy at this juncture will not alter the situation in Europe.”

In fact, the stampede of global investors to the safety of bonds, which has driven U.S. and other interest rates to record lows, could give Fed officials breathing room, Bullard said. “One possible strategy is to simply pocket the lower yields and continue to wait and see on the U.S. economic outlook,” he said.

The yield on the benchmark 10-year Treasury bill, which fell to a record low of 1.44 percent on Friday, rose to 1.57 percent on Tuesday.

Fisher, in a speech in Scotland, said Fed policy makers “must keep their heads about them” after the rash of weak data and resist trying to solve economic problems with more monetary stimulus. “Short of an implosion, I cannot support further quantitative easing,” he said.

Fisher is one of the central bank’s most ardent inflation hawks, and even the more-centrist Bullard has been a vocal proponent of allowing the economy time to heal.

But taken along with recent comments from Sandra Pianalto, president of the Cleveland Fed, who told The Wall Street Journal that a dismal U.S. jobs report on Friday did not merit a policy response, the remarks suggest Fed officials are not ready to pull the trigger on further easing at their upcoming meeting on June 19-20.

Considered a moderate dove, Pianalto is a voter this year on the Fed’s policy-setting Federal Open Market Committee, while Bullard and Fisher are not.

Later on Tuesday, Chicago Fed President Charles Evans, perhaps the most dovish of the central bank’s 19 policymakers, redoubled his push for the Fed to ease policy yet more. He said the May jobs report, which was much weaker than expected, would likely dampen his own expectations for economic growth.

“Since the summer of 2010, I have consistently argued for the strongest policy accommodation available,” Evans said in New York. “With huge resource gaps, slow growth and low inflation, the economic circumstances warrant extremely strong accommodation.”

Congressional testimony by Fed Chairman Ben Bernanke on Thursday and a speech by Vice Chairman Janet Yellen on Wednesday will give a clearer sense of whether the most influential officials want to hold off taking any new steps.


The Fed cut benchmark short-term rates to near zero in 2008 and bought $2.3 trillion to pull the world’s largest economy out of a deep recession and support a fledgling recovery.

As the recovery threatened to stall last year, the Fed began exchanging shorter-dated securities in its portfolio for longer-term ones to drive down longer-term interest rates; that program is scheduled to end this month. The U.S. central bank has also issued a conditional pledge to hold rates near zero until late 2014.

Most Fed officials had signaled comfort with steady policy in recent weeks, but a Reuters poll of Wall Streets firms that deal directly with the Fed found the jobs report, which showed the economy added only 69,000 jobs last month, had fueled expectations of a further easing in monetary policy. <FED/R>

The jobless rate rose in May for the first time in nearly a year, to 8.2 percent from 8.1 percent in April, while employment growth was revised down in April and March, revealing a three-month swoon in the labor market.

Some analysts expect an extension of the Fed’s “Operation Twist” program to extend the maturity of its portfolio holdings, while others look for it to expand its balance sheet with outright bond purchases.

Asked whether Operation Twist was doing any good, Fisher said, “I am extremely suspect about the efficacy of Operation Twist.”

The slowdown in hiring in the United States comes as Europe’s debt crisis intensifies. Spain, the euro zone’s fourth-largest economy, warned on Tuesday that it was losing access to credit markets, and the finance ministers of major world economies held an emergency conference call to discuss the crisis.

Even so, Bullard cautioned against over-reacting.

“I don’t think it’s reasonable to say we’re going to have a policy reaction every time the situation seems to get a little hotter,” he told the conference in St. Louis, which was organized by the Bipartisan Policy Center.

Fisher said the Fed should not be an “accomplice to the mischief” of fiscal policy makers in Washington who had not provided enough certainty on the regulatory and budget outlook for business decision makers, a theme he visits frequently.

“Unless fiscal authorities can structure their affairs to incent the private sector into putting the cheap and ample money the Fed has provided to the economy to work in job creation, monetary policy will prove impotent,” Fisher said.

“My point is monetary policy is not the answer - it can only make things worse if this monetizing is repeated.”

Additional reporting by Philip Baillie in St. Andrews, Scotland; Editing by Neil Stempleman, Leslie Adler and David Brunnstrom

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