* Bernanke signals comfort with Fed policy stance
* Holds out prospect of more bond buying if economy weakens
* Fed policy panel: first rate hike no sooner than late 2014
* GDP forecast bumped up for 2012, but 2013, 2014 lowered
By Pedro Nicolaci da Costa and Mark Felsenthal
WASHINGTON, April 25 (Reuters) – Federal Reserve Chairman
Ben Bernanke on Wednesday said U.S. monetary policy is “more or
less in the right place” even though the central bank would not
hesitate to launch another round of bond purchases if the
economy were to weaken.
In a statement after a two-day meeting, the Fed’s
policy-setting panel reiterated its expectation that interest
rates would not rise until late 2014 at the earliest, and it
took no action on monetary policy.
The Fed also adjusted its economic forecasts to acknowledge
both a labor market that is improving and stronger than expected
growth this year. At the same time, officials anticipate that
tax hikes and spending cuts could slow growth in 2013 and 2014.
” We remain entirely prepared to take additional balance
sheet actions as necessary to achieve our objectives,” Bernanke
told reporters. “Those tools remained very much on the table and
we would not hesitate to use them should the economy require
that additional support.”
He said the central bank could be spurred into action if the
U.S. unemployment rate, which stood at 8.2 percent last month,
failed to keep moving lower, but added: “F or the time being, it
appears that we are more or less in the right place.”
In response to the deepest recession in generations, the Fed
cut overnight rates to near zero in December 2008 and more than
tripled its balance sheet by purchasing $2.3 trillion in
government and mortgage bonds in two rounds of so-called
quantitative easing.
Fresh projections released by the central bank showed the
most dovish officials no longer want to put off a rate increase
until 2016, a move analysts said could also suggest there is
less of an appetite within the Fed for further easing.
The projections showed seven officials now believe it would
be appropriate to raise borrowing costs some time in 2014, up
from five in January, while only four wanted to wait longer,
down from six. Interest-rate futures showed traders betting the
first rate hike would come in March 2014, a month sooner than
earlier thought.
“It looks like the more positive data over the past few
months has affected the people at the more dovish end of the
spectrum,” said Sean Incremona, an economist at 4Cast in New
York. Col in Lundgren, head of fixed income at Columbia
Management in Minneapolis, said: “I wouldn’t call it hawkish.
It’s more that they are less dovish.”
Prices for long-term U.S. government debt ended slightly
lower as investors pulled back bets on further bond buying.
Stocks closed higher as a near doubling of profits at Apple
fueled optimism.
Richmond Fed President Jeffrey Lacker dissented against the
central bank’s policy decision, saying he believed rates would
need to rise sooner than late 2014. He has now dissented at all
three of the policy meetings the Fed has held this year.
INFLATION SPIKE SEEN TEMPORARY
U.S. economic growth has been just firm enough to weaken the
case for additional stimulus through Fed bond purchases. Gross
domestic product expanded at a 3 percent annual rate in the
fourth quarter but economists expect it slowed to around a 2.5
percent pace in the first three months of this year.
The Fed described the economy as expanding moderately, just
as it did last month, and said the unemployment rate had
declined but remains elevated. In March, it had said the jobless
rate had declined “notably.”
The central bank bumped up its growth forecast for 2012 but
lowered it for the next two years. The fresh four-times-a-year
projections showed the central bank expects the jobless rate to
fall faster than it did previously.
Further, it sees higher inflation over the next few years
than it saw in January, with a notable rise in its forecasts for
this year that takes into account a run-up in gasoline prices.
Still, the Fed does not expect inflation to breach its 2
percent target.
Policymakers nodded to “some signs of improvement” in the
housing sector and, while repeating that they expect moderate
economic growth in coming quarters, said the recovery should
then “pick up gradually.”
“To support a stronger economic recovery and to help ensure
that inflation, over time, is at the rate most consistent with
its dual mandate, the committee expects to maintain a highly
accommodative stance for monetary policy,” the Fed said.
As officials gathered, the government reported that orders
for long-lasting manufactured goods plunged 4.2 percent in
March, the biggest drop since the economy was nose-diving in
early 2009. The data was the latest to suggest the economy lost
momentum as the first quarter drew to a close.
