Two voting members of the Federal Reserve’s policy-setting panel stressed the need to maintain record stimulus to keep the expansion going, and they cited a job-market slowdown as evidence of risks to the economy.
The slowest payrolls growth in nine months in March “underscores the need to wait and see how the economy develops before declaring victory,” William C. Dudley, president of the Federal Reserve Bank of New York, said today in a speech in Staten Island. “I don’t think we should be complacent,” Charles Evans, president of the Chicago Fed, said separately. “Unemployment is unacceptably high.”
The need for continued stimulus also found support from Fed Vice Chairman Janet Yellen, who repeated the central bank’s view that the benchmark interest rate should remain low for a “considerable time” after the recovery strengthens. In a speech in Washington today, she said she doesn’t see “pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability.”
Members of the Federal Open Market Committee, which next meets April 30-May 1, are debating how long to maintain $85 billion in monthly asset purchases. Evans told reporters in Chicago today that he expects the Fed to keep buying bonds at least until late this year, while Philadelphia’s Charles Plosser, who isn’t a voting member of the panel, said last week that purchases should be scaled back in the next few months, barring a slump in the economy.
Employers added 88,000 workers to payrolls last month, the smallest gain in nine months, a Labor Department report showed April 5.
“The last employment report was discouraging,” Evans told reporters today after a speech. “I don’t think we’ve seen substantial improvement in the labor market to lead me to want to think about” winding down the quantitative easing program.
The slowdown, along with federal spending cuts and tax increases, “makes me more cautious,” Dudley said. “We have seen only a moderate improvement in labor market conditions over the past six months or so.”
Reports today showed that new-home construction climbed to the highest level in almost five years, while factory production cooled. At the same time, data showed that consumer prices unexpectedly dropped last month, indicating that the Fed has leeway to keep pumping money into the financial system.
Stocks rallied and Treasuries fell after the reports, while gold rebounded from its biggest slump in three decades. The Standard & Poor’s 500 Index gained 1.4 percent 1,574.57 at 4:18 p.m. in New York. The U.S. 10-year yield rose four basis points, or 0.04 percentage point, to 1.72 percent.
In his speech today, Evans said job growth accelerated the past years, only to stall and require additional stimulus from the Fed.
“We’ve been disappointed before,” he said. Still, “it’s too early to say that the labor market isn’t continuing to progress,” he added to reporters.
Several Fed officials said the central bank should begin slowing the pace of its asset purchase program later this year and halt it entirely by year end, according to minutes of the March 19-20 FOMC gathering.
Dudley and Evans today both signaled their support for the Fed’s current approach, with the New York official calling the existing pace “appropriate” and Evans saying monetary policy was in “a pretty good place.”
“I’m going to be looking for payroll employment growth to be comfortably above 200,000 per month for quite a number of months,” Evans said. “I would not be surprised if we end up doing this until late 2013, ultimately ending the program in 2014 at some point.”