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Three Fed Policy Voters Signal Prolonged Easing to Stoke Growth

Fed Governor Jerome Powell
Jerome Powell, governor of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

Three Federal Reserve officials who vote on policy this year signaled the Fed may press on with easing for some time to reduce the jobless rate and push up inflation toward the central bank’s 2 percent target.

“Monetary policy in the United States is likely to remain highly accommodative for some time,” Fed Governor Jerome Powell said yesterday in a speech in San Francisco. Boston Fed President Eric Rosengren backed further easing to “achieve full employment within a reasonable forecast horizon,” while James Bullard of the St. Louis Fed said in an interview on CNBC he wants the Fed to “meet our goals,” singling out inflation.

The policy-setting Federal Open Market Committee last week maintained $85 billion in monthly asset purchases after unexpectedly refraining from tapering the program in September. The committee wants to see more signs of sustained economic gains, it said on Oct. 30 after a two-day meeting.

The Fed won’t reduce its bond purchases until March, according to the median estimate of economists surveyed by Bloomberg on Oct. 17-18 after a federal government shutdown slowed fourth-quarter growth and interrupted the flow of official economic data. Economists had initially expected a tapering of so-called quantitative easing in September.

Economists in a Bloomberg survey last week estimated the economy expanded 2 percent in the third quarter, down from 2.5 percent the previous quarter. The Commerce Department plans to release its initial estimate of third quarter growth on Nov. 7.

Dual Mandate

The central bank is falling short of meeting both sides of its dual mandate. Unemployment in September was 7.2 percent as payroll growth slowed, while the Fed’s preferred gauge of inflation, the personal consumption expenditures index, rose at a year-over-year rate of 1.2 percent in August.

The central bank is currently purchasing assets at “a torrid pace, and I’d rather get out of it if we can, but I’d like to meet our goals,” Bullard said yesterday.

Rosengren, speaking in Boston, said “monetary policy is likely to need to remain accommodative for some time so that we can achieve full employment within a reasonable forecast horizon.”

Stocks rose yesterday after the Standard & Poor’s 500 Index advanced for four straight weeks. The index gained 0.4 percent to 1,767.93. Bonds rose, with the yield on the 10-year Treasury note falling 2 basis points, or 0.02 percentage point, to 2.6 percent.

‘Necessarily Uncertain’

“The timing of this moderation in the pace of purchases is necessarily uncertain, as it depends on the evolution of the economy,” Powell said. “What is reasonable to expect us to do is to be transparent and to move gradually when it is time to withdraw accommodation, or even to begin reducing the pace at which we add accommodation,” he added in response to an audience question after the speech.

The FOMC in its statement last week signaled diminishing concern over higher borrowing costs, dropping a warning from the previous meeting that “tightening” financial conditions could impair the four-year expansion. The committee said fiscal policy is restraining economic growth.

Minutes from the FOMC’s Sept. 17-18 meeting showed the committee’s decision to refrain from reducing bond buying was “a relatively close call” for several members.

When the Fed eventually slows its quantitative easing program from the current pace of $85 billion a month, “we will not be restraining the economy -- in fact, we will still be adding stimulus to the economy but in smaller increments than before,” Rosengren said in his speech.

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