February 24, 2012 / 5:20 PM / 7 years ago

CORRECTED-WRAPUP 2-Fed says policy appropriate, few hints of new stimulus

* Bullard says economy would need to worsen before QE3
    * Williams hints at predilection for mortgage buys
    * Plosser worried about crossing fiscal line on policy

    By Pedro da Costa and Jonathan Spicer	
    NEW YORK, Feb 24 (Reuters) - Top Federal Reserve
officials said on Friday the U.S. central bank's
ultra-easy monetary policy is appropriate for a sluggish economy
but one policymaker said further easing would only be warranted
if conditions worsen.	
    St. Louis Federal Reserve Bank President James Bullard told
CNBC television that now was a "natural time" for the U.S.
central bank to pause and await more data given the economy and
labor market are looking better.  	
    "With the better data, the super-easy policy already in
place ... I think we've got a lot on the table here so this is a
normal situation to sit back, get more data and try to collect
our thoughts about the main things that are affecting the
economy right now," Bullard said.	
    Many investors had been expecting the Fed to embark on a
third round of bond buying this year to keep interest rates low
and so spur economic growth, but a recent improvement in the
outlook has dampened such speculation.	
    John Williams, president of the San Francisco Fed, said the
recovery was still sufficiently lackluster to warrant a heavy
dose of monetary stimulus.  	
    While he stopped short of calling for additional easing,
Williams hinted that he would not be averse to further stimulus
from the Fed. Williams was discussing a paper on monetary policy
presented at a conference sponsored by the University of Chicago
Booth School of Business.   	
    "The paper's executive summary notes that current 'headwinds
... may require a more aggressive monetary response than in
normal downturns'. I agree," Williams said.   	
    He indicated a preference for a return to buying
mortgage-backed securities, which would have the added advantage
of helping to support the housing market, a key sector of the
economy that remains crippled.   	
    "Purchases of mortgage-related securities appear to have
reduced mortgage rates significantly, making them particularly
useful given the weakness in the housing sector," Williams said.	
    Last month, the central bank said it would likely keep U.S.
benchmark interest rates near zero until at least late 2014.	
    Bullard, a policy centrist who does not have a vote this
year on the Fed's policy-setting panel, said a third round of
'quantitative easing', or QE3, is a "potent weapon" that the Fed
can use to help spur the recovery.  	
    "I wouldn't take QE3 off the table forever," he said.  	
    "But we should use it only if the economy deteriorates and
especially if inflation numbers come in below our (2 percent)
inflation target and start to drift down to more disinflation or
(into) deflation. So we're not in that situation now."  	
    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.   	
    Fed Chairman Ben Bernanke said this month the economy still
needs plenty of support and defended the Fed's aggressive
policies to ratchet down unemployment, which has fallen in
recent months but is still stubbornly high at 8.3 percent.	
    Speaking at the same conference as Williams and Bullard,
Bank of Canada President Mark Carney praised the Federal Reserve
for being "appropriately and effectively radical by implementing
a range of powerful unconventional tools." 	
    He said the Fed was able to use the anchor of an explicit
inflation target to employ communications as a tool for
stimulus.	
    "We expect that the Fed's elaboration of its longer-term
policy goals will enhance the stimulative effect of its
announcement that the federal funds rate is likely to remain at
exceptionally low levels at least through late 2014," Carney
said. 	
   Charles Plosser, the Philadelphia Fed's hawkish
president, stayed away from the immediate outlook for policy but
stated his strong distaste for central bank policies such as
mortgage bond purchases that he said cross the line into fiscal
policy.	
    "Once a central bank ventures into fiscal policy, it is
likely to find itself under increasing pressure from the private
sector, financial markets, or the government to use its balance
sheet to substitute for other fiscal decisions," Plosser told
the Chicago Booth conference.	
    New York Fed President William Dudley also waded into the
fiscal policy debate, arguing the government needs a medium-term
plan to reduce its high deficits and debt. 
    "It is essential that the United States put in place a
credible program of medium-term fiscal consolidation that
addresses our sizeable and growing structural deficits in a
manner that is consistent with supporting ongoing economic
recovery," he said.
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