Three Fed Presidents Say New QE Isn’t Needed for Economy

Three Federal Reserve bank presidents said they don’t see the need for a new bond-buying program by the U.S. central bank as the economy shows signs of strength.

San Francisco’s John C. Williams said he’s “not in favor of going into QE3 at this time,” referring to a third round of so-called quantitative easing. Philadelphia’s Charles Plosser said scenarios that would warrant such stimulus aren’t “in my forecast right now,” and Atlanta’s Dennis Lockhart agreed such “conditions” are “quite different than what we see today.” The three policy makers spoke in Santa Barbara, California.

The odds of more Fed stimulus diminished this week as four central bankers, also including the Richmond Fed’s Jeffrey Lacker, said such action probably won’t be necessary and U.S. manufacturing showed unexpected vitality. The Federal Open Market Committee left policy unchanged after its April 24-25 meeting, and Chairman Ben S. Bernanke signaled that further easing is unlikely unless the economy deteriorates.

“Right now, our policy is correctly calibrated,” Williams said on a panel today. He said more asset purchases may be warranted if the economy worsens.

If the expansion flags, “then it’s natural to say we need to have more monetary stimulus in order to get us closer to our objectives,” Williams said. Bernanke also said last week that he’s “prepared to do more” should conditions deteriorate.

Jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period, according to Labor Department figures released today. Still, a separate report from the Institute for Supply Management showed service industries expanded in April at a slower pace than economists projected.

Stocks Fall

Stocks fell for a second day after the services report fueled concern the expansion is slowing. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,391.57 in New York.

Concern that inflation may exceed the central bank’s 2 percent goal weighs against consideration of providing additional stimulus to reduce unemployment, Lockhart said.

“The Fed’s already done a lot to support the recovery,” he said. “Whether additional monetary policy actions should be used at this time to try to speed things up has to be balanced against the risks to the Fed’s price stability objective that could accompany an overestimating of the amount of economic slack.”

The FOMC repeated last month that borrowing costs will probably remain “exceptionally low” at least through late 2014. Fed officials also raised their projections for economic expansion at the April meeting, predicting growth of 2.4 percent to 2.9 percent this year, up from a January prediction of 2.2 percent to 2.7 percent.

Plosser predicted U.S. economic growth of 3 percent this year and next, saying those views put him “in the slightly more optimistic camp.”

To contact the reporters on this story: Caroline Salas Gage in New York at salas1@bloomberg.net; Aki Ito in Santa Barbara, California at aito16@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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