* Evans repeats call for more policy accommodation
* Lockhart: not time for big guns yet
* Evans says data already signals need for Fed to do more
* Fed’s readiness to do more depends on events – Lockhart
By Ann Saphir
CHICAGO, June 27 (Reuters) – Top Federal Reserve officials
differed on whether the U.S. central bank needs to be more
aggressive in spurring economic growth, indicating another round
of easing is far from certain.
Chicago Federal Reserve Bank President Charles Evans, one of
the U.S. central bank’s strongest advocates for further monetary
policy easing, said Wednesday he is flummoxed by the Fed’s
timidity in the face of high unemployment and low inflation.
However, his colleague, Atlanta Fed leader Dennis Lockhart,
said the Fed would only need to act further if the economy took
a turn for the worse or if Europe’s simmering debt crisis boils
over.
“I don’t think the conditions have developed that require us
to bring out bigger guns quite yet,” Lockhart said in an
interview with Nightly Business Report.
Lockhart, who unlike Evans wields a vote this year on the
Fed’s policy-setting panel, said policymakers’ most recent
action, extending a program swapping shorter-term bonds it owns
for longer-term ones to push down longer-term interest rates,
serves to maintain the right level of help for the weak
recovery.
An escalation of problems in Europe, a sudden slowing of
U.S. economic growth, a spike in job layoffs, or the risk of a
deflationary spiral might be triggers for more Fed action that
could include another round of bond buying, Lockhart said.
“If the circumstances call for it, more stimulus could be
provided,” he said.
The Atlanta Fed president’s stance is as at the mid-point of
Fed views that range from reluctance to further expand the
central bank’s underpinning of the modest recovery to those such
as Evans who think more aggressive steps are urgently needed.
The Fed cut rates to near zero in December 2008 and has
bought $2.3 trillion in bonds to pull the economy out of
recession and spur an acceleration in growth. At its
policy-setting meeting last week, Fed officials sharply slashed
their gross domestic product forecasts for 2012 and 2013 and
marked down the outlook for inflation.
Those changes to the U.S. central bank’s summary of economic
projections, suggest progress on its twin goals of full
employment and stable prices is slowing if not stalled.
Instead of reacting with a new round of bond buying to boost
jobs, the Fed took the much more modest step of adding six
months to an existing program, known as Operation Twist, that is
aimed at lowering long-term interest rates.
“I think if you look at our projections … it’s hard to
understand why we wouldn’t be willing to do more because the
inflation outlook is lower than our objective,” Evans told a
small group of reporters at the Chicago Fed headquarters.
With unemployment at the “completely unacceptable” level of
8.2 percent and inflation set to fall, the Fed should be ramping
up even more its already significant level of accommodation,
Evans said. Extending Operation Twist is better than nothing, he
said, but is likely to reduce 10-year Treasury yields by only
about a tenth of a percent.
Although the Fed said in January it will take a “balanced
approach” to meeting its goals, Evans suggested Wednesday the
central bank should allow a bit more inflation in the pursuit of
higher employment.
“I don’t think we’ve clarified what we mean by ‘balanced
approach’ at all,” said Evans, who grimaced at times as he
described an economy close to stall speed and faced with risks
from Europe’s crisis and elsewhere.
“I think that a balanced approach means I’d be willing to
undertake accommodative policies at some risk of increased
inflation – it’s below our target – at some risk of increasing
it above that by some amount,” he said. “How much? How much?
That’s a fair question. We are not offering very much in
delineating that.”
The Fed last week kept its guidance that rates will stay low
until at least late 2014, tying policy to the calendar in a
fashion that virtually no Fed policymaker appears to support
wholeheartedly.
Evans, for his part, said the Fed needs to provide more
clarity around that guidance, and reiterated his view the
central bank should promise to keep rates low until unemployment
falls to 7 percent, or inflation threatens to rise above 3
percent.
It should also be clearer about how far inflation would need
to deviate from the Fed’s 2 percent inflation target, either
above or below, before setting off alarm bells, he said.
Yet Evans suggested the Fed’s communications sub-committee,
of which he is a member, is not close to providing additional
refinements to its current guidance.
“We are trying to understand the implications of what we’ve
put in place, and whether or not there are simple enhancements,
or alternative enhancements, that could improve things,” he
said.
Before committing to further quantitative easing, the Fed
last week appeared to want to give European policymakers a
chance to stabilize the crisis-stricken euro zone, warning of
“significant downside risks to the economic outlook,” including
Europe’s sovereign debt crisis.
Fed Chairman Ben Bernanke also said he was watching to see
if jobs data might improve before unleashing any new round of
bond purchases.
