Bruce Kasman, chief economist for JPMorgan Chase & Co. (JPM) in New York, and Diane Swonk, chief economist for Mesirow Financial Inc. in Chicago, said the dissent by Federal Reserve Bank of Chicago President Charles Evans may reflect other members’ views on the Federal Open Market Committee.
They spoke after the Fed’s decision today to leave monetary policy unchanged. Ira Jersey, the New York-based director of U.S. rates strategy at Credit Suisse Group AG (CSGN); Paul Ballew, chief economist at Nationwide Mutual Insurance Co.; Jason Schenker, president of Prestige Economics LLC; and Dean Maki, chief U.S. economist at Barclays Capital, also commented today.
The Evans’ dissent likely reflects the concerns of at least three or four other members on the committee, and that camp believes “the Fed needs to work towards getting growth solid enough to get the unemployment rate down materially. Materially means on a long path of a number of years of above-trend growth and probably at least two or three.”
“The Fed is limited.”
“The central bank is grappling to use tools in an environment in which it clearly feels somewhat limited in its ability to impact the mortgage market and impact the economy. And it needs fiscal policy to be working in a consistent fashion.”
“Charlie’s dissent reflects his devotion to doing more sooner to alleviate unemployment.”
“It is also reflective of a growing consensus among board members that committing to reflating the economy is the right thing to do in a liquidity trap.”
“Charlie -- and Ben -- has made it clear that we are giving up too soon on the long-term unemployed and that although structural unemployment may be rising, it isn’t 9 percent.”
In the past, “you did have three dissents, three people who didn’t think you should do Operation Twist, and now we are doing Operation Twist and those same people aren’t dissenting. You actually have someone who wants more accommodation. I suspect that means we could get more accommodation in the future since you have some of the hawks perhaps backing off from their opposition to accommodation.”
“Charlie is taking a very aggressive position and is the No. 1 advocate for the Fed being more interventionist.”
“There’s a very healthy debate going on right now between more interventionist Fed members, such as Charlie” and Fed Vice Chair Janet Yellen, “who would like the Fed to be more aggressive beyond what’s been done.”
“On the flip side, you have some presidents who are more hesitant in terms of next steps and you have the chairman in between.”
“Really, the challenge is that QE1,” or the Fed’s first round of unconventional monetary policy known as quantitative easing, “was a no-brainer, QE2 was modestly controversial, and Operation Twist and a possible QE3 would be pretty controversial.”
“QE3 is off the table for now.”
“It has been shelved at least for now. We have better growth data and CPI inflation is rising. We are on the verge of having levels that the Fed would not be comfortable with.”
“Further quantitative easing looks increasingly unlikely. There is a tone of a bit more optimism, reflecting the data since September.
Schenker on Evans:
‘‘He thinks we should do more. The U.S. economy is susceptible to additional shocks, so there is justification for considering additional stimulus. It is not surprising there is a division.’’
‘‘They were pretty minimalist in their changes. They really changed just what they needed to to reflect the fact that economic growth has picked up, that consumer spending has picked up. They stayed relatively cautious.’’
‘‘They point to the moderate pace that they’re expecting, last time they said’’ growth would pick up and they’re acknowledging that it did.
The statement ‘‘doesn’t change our view. Certainly, the Fed has an easing bias and did have one before. The Fed is certainly closer to easing than to tightening.”
“At this point, based on what we know from the statement, we wouldn’t expect the Fed to be imminently close to easing further.”
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