A string of Federal Reserve officials on Tuesday indicated the central bank will soon offer further monetary stimulus to the economy, with one saying $100 billion a month in bond buys may be appropriate.
While some internal reticence to the unconventional policy was still evident, the consensus view at the Fed sees the economy as weak enough to warrant further support, most likely through increased purchases of Treasury debt.
The U.S. economy is expected to have grown just 1.9 percent in the third quarter, a level considered too low to bring down unemployment. The debt purchases would help lower long-term interest rates in the hope of boosting demand.
Atlanta Fed President Dennis Lockhart’s willingness to cite a specific dollar figure for purchases, one largely in tandem with market expectations, was seen as another hint that planning is actively underway.
“If we’re going to pursue another round of quantitative easing, it has to be a large enough number to make a difference,” Lockhart said in an interview on CNBC television.
“As a monthly number ($100 billion) is fairly consistent with what we did before, and so I think it would certainly be in the range of numbers one might consider … but if you were talking about $100 billion as simply the overall program, I think that’s too small,” he said.
Two especially dovish speeches, from the Chicago Fed’s Charles Evans and New York Fed chief William Dudley, suggested some officials would like to consider explicitly raising the Fed’s inflation target for a time, a controversial proposal.
Dudley said both inflation and employment are likely to remain below levels that are consistent with the Fed’s mandate.
“Viewed through the lens of the Federal Reserve’s dual mandate — the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory,” Dudley said, repeating an argument he made earlier this month.
The reassurances about forthcoming stimulus were not enough to soothe U.S. stocks, which were down sharply on the day after an interest rate hike in China sparked concerns about the outlook for global growth.
VERBAL DISSENT
The view that further stimulus was needed appeared to hold sway at the central bank, but was not unanimously held. Dallas Fed President Richard Fisher said that while the economy is barely growing fast enough to create new jobs, the case for further monetary easing has not been made conclusively.
“The efficacy of further accommodation using nonconventional policies is not all that clear,” he said in comments prepared for delivery to the New York Association for Business Economics.
His counterpart at the Minneapolis Fed, Narayana Kocherlakota, also appeared skeptical about how much stimulus further bond purchases or quantitative easing could provide.
“My own guess is that further uses of QE would have a more muted effect on Treasury term premia,” because markets are functioning much better now than in early 2009, said Kocherlakota, who will rotate into a voting seat on the Fed’s policy-making committee next year.
