Two Federal Reserve regional bank presidents who have disagreed on the need for additional easing said any decision to taper bond buying should be accompanied by a limit on the size of the program or a timetable for ending it.
“If and when the FOMC arrives at a decision to wind down asset purchases, it’s my view that it will be helpful to the transition process to provide as much certainty as possible about how this will be done,” said Atlanta Fed President Dennis Lockhart, referring to the Federal Open Market Committee, in a speech in Fort Lauderdale, Florida. He has backed record stimulus and won’t vote on policy until 2015.
Dallas Fed President Richard Fisher, an opponent of additional bond buying who will vote on policy next year, said to reporters today in College Station, Texas, that the Fed at the start of tapering purchases should provide “a definite path as to when we reach zero.” The Fed each month is purchasing $85 billion in bonds.
The view of the two regional Fed chiefs differs from the current central bank policy to buy bonds without setting an end date or a limit on total purchases. Officials such as St. Louis Fed President James Bullard favor retaining the option to alter the amount of bond buying at every FOMC meeting after reviewing fresh economic data. Bullard holds a vote on the FOMC this year.
The FOMC will consider scaling back bond purchases in coming months based on expected gains in the labor market, according to minutes from the committee’s October meeting. The panel is scheduled to meet Dec. 17-18.
The U.S. economy probably added 185,000 jobs last month, and the unemployment rate fell to 7.2 percent from 7.3 percent, according to median estimates in a Bloomberg survey of economists before a government report tomorrow. So far, the decline in the unemployment rate isn’t “satisfactory,” Fisher said in his speech.
Lockhart said he is among some FOMC participants who favor announcing a “total size of remaining purchases or a timetable for winding down the program.” He spoke to Broward Workshop, a local business group.
“I am among those who see merit in this approach as long as the economy follows roughly the path we expect,” he said. “Once the decision is made, I favor providing the public as much clarity and certainty as possible about how the change will be executed.”
Lockhart said to reporters that he hasn’t decided whether to favor tapering at the FOMC meeting this month.
“December certainly is a meeting in which the issue can be addressed, but I want to be quite confident the economy is on the track I believe it is on,” he said after his speech.
A report today that the U.S. economy expanded at a 3.6 percent annualized rate in the third quarter stemmed in part from rising inventories that could be offset in coming quarters, Lockhart said to reporters. The growth rate was the fastest since the first quarter of 2012 and higher than an initial estimate of 2.8 percent.
The U.S. “economy is doing increasingly better,” Fisher said.
“It is a strong quarter,” Lockhart said, adding it “doesn’t make a trend.”
The FOMC may consider changes in its communications, or its “forward guidance” on interest rates, Lockhart said.
Lowering the interest rate the Fed pays on excess reserves is among the “ideas that are still in play,” he said.
In response to audience questions, Lockhart said he doesn’t believe the stock market is overpriced. “I don’t think it is in bubble territory,” he said.
U.S. stocks declined today, with the Standard & Poor’s 500 Index falling 0.4 percent to 1,786.57 at 3:42 p.m. in New York after the report on third-quarter growth fueled speculation the Fed will curb stimulus. The benchmark 10-year Treasury yield rose four basis points, or 0.04 percentage point, to 2.87 percent.
Lockhart in his speech predicted the labor market will improve, with inflation rising toward the Fed’s target.
Unemployment will probably fall to about 7 percent by the middle of next year and won’t decline to 6.5 percent until after 2014, Lockhart said in response to an audience question after a second speech to business leaders in Ft. Lauderdale.
“My outlook for 2014 calls for some firming in economic activity,” he said in his speech.
The economy expanded at a “modest to moderate” pace from early October through mid-November, the central bank said yesterday in a survey of regional economic conditions.
“I now think it is appropriate in coming meetings to put a tapering decision on the table as long as the resulting overall posture of policy preserves a high degree of accommodation,” Lockhart said.