Two regional Federal Reserve presidents said they want the Fed to keep buying bonds through the end of 2013, while a third official said the central bank isn’t doing enough to spur economic growth.
“We should continue our large-scale asset purchases of Treasury and mortgage-backed securities through this year -- although the amount may need to be adjusted up or down, depending on how the economic situation evolves,” Boston Fed President Eric Rosengren said today in a speech in Manchester, New Hampshire. “This is a point when we have to be patient and let our policies work,” with stimulus “firing on all cylinders,” Chicago’s Charles Evans said to reporters.
The comments by Evans, Rosengren and Minneapolis’ Narayana Kocherlakota reinforce Chairman Ben S. Bernanke’s push to sustain record easing even as some policy makers voice concern the stimulus is ineffective or harmful. The Fed affirmed a plan last week to buy $85 billion in bonds each month in quantitative easing that has ballooned its assets beyond $3 trillion.
“Monetary policy is currently not accommodative enough,” Kocherlakota said today in Edina, Minnesota. He said he favored easing policy by reducing to 5.5 percent from 6.5 percent the threshold at which the Fed will consider raising the main interest rate.
The yield on the 10-year Treasury note fell 0.07 percentage point to 1.85 percent at 3:32 p.m. in New York as investors sought refuge amid concern Italy faces an uphill battle in forming a government coalition to resolve a deadlock caused by elections last month. The Standard & Poor’s 500 Index was little changed at 1,563.68.
“I’m going to have a lot more confidence if I begin to see indications that growth is well above trend and it’s going to be sustainable,” Evans, a voting member of the Federal Open Market Committee, said at the Chicago Fed. “We have gone through this type of thing before, where we saw improvements in the labor numbers” only to watch job growth slow “to unhelpful levels.”
Since reducing its benchmark interest rate almost to zero in December 2008, the FOMC has experimented with large-scale asset purchases to bolster growth. The Fed started a third round of quantitative easing in September, specifying neither an end date for the program nor a total amount officials plan to buy.
Rosengren holds a vote on monetary policy this year, while Kocherlakota does not.
The presidents supported sustained easing even as some FOMC participants express concern the growing balance sheet will impair Fed efforts to reverse course and exit from stimulus, said Laurence Meyer, co-founder and senior managing director at Macroeconomic Advisers LLC and a former Fed governor.
“Exit may be quite far away, but everybody recognizes including the FOMC the challenges they face” in withdrawing accommodation, Meyer said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “The larger the balance sheet, the greater the risk you won’t be able to smoothly unwind.”
Dallas Fed President Richard Fisher is among officials who have argued for an immediate tapering of bond purchases, while Kansas City’s Esther George has dissented at both meetings this year, saying further easing risks creating financial instability.
Bernanke said last week the central bank would alter monthly buying in response to gains in the job market, underscoring a need for flexibility. He said further gains would be needed to be sure “this is not a temporary improvement.”