* Three policymakers tick off list of concerns
* Resistance to Bernanke and the central bank majority
By Jonathan Spicer
Nov 15 (Reuters) – The Federal Reserve’s most hawkish
policymakers were out in force on Thursday to criticize as
misguided and risky the central bank’s aggressive attempts to
boost the U.S. economic recovery.
In speeches around the country, three regional Fed
presidents ticked off their reasons for opposing the U.S.
central bank’s current and possibly massive round of large-scale
asset purchases, including the risk of inflation and the
prospect of letting politicians off the hook for inaction on the
economy.
Many of these concerns have been raised in the past. But
Thursday’s speeches by the so-called hawks – who generally worry
about a run-up in inflation – illustrated the resistance that
Fed Chairman Ben Bernanke and the other officials who constitute
a majority face at their closed-door policy-setting meetings.
“The extraordinary policies the Fed has pursued pose
substantive longer-term risks: these include moral hazard,
future inflation, and loss of institutional credibility,”
Charles Plosser, president of the Philadelphia Federal Reserve
Bank, said in Washington.
Jeffrey Lacker, the head of the Richmond Fed, who has cast a
dissenting vote at every policy meeting this year, said the
current anemic but ongoing recovery does not justify more
stimulus by the U.S. central bank.
“We should be standing pat now rather than easing policy
further,” Lacker told the West Virginia Economic Outlook
conference. “It’s not clear whether monetary policy, by itself,
can bring about any material improvement in economic growth
right now.”
Even so, Bernanke in a speech on Thursday highlighted
lingering weakness in the housing market, a key component in the
economic recovery.
“Although there are good reasons to be encouraged by the
recent direction of the housing market, we should not be
satisfied with the progress we have seen so far,” Bernanke told
the Operation HOPE Global Financial Dignity Summit in Atlanta.
Minutes of the Fed’s October policy meeting suggested that
the doves – Fed officials more concerned with lowering the lofty
unemployment rate than with inflation risk – still hold sway.
A number of officials felt the central bank would need to
step up asset purchases in 2013 to fill the gap when the program
known as Operation Twist expires, according to the minutes
released on Wednesday that hardened expectations the Fed will
take such a decision next month.
Under Operation Twist, which expires at year end, the Fed
has been selling short-term securities to buy $45 billion in
longer-term debt every month to push down long-term borrowing
costs.
In September, the Fed launched its third round of
quantitative easing, dubbed QE3, in which it also buys $40
billion per month in mortgage-backed securities until the labor
market outlook improves substantially.
Meanwhile, the Fed’s key interest rate has been near zero
since late 2008 to battle the worst recession in decades. In a
sign of how wide is the range of thinking among the 19
policymakers, Fed Vice Chair Janet Yellen on Tuesday backed
keeping the rate that low through 2016.
In Palo Alto, California, Dallas Fed President Richard
Fisher highlighted the risk that overly aggressive policies such
as buying bonds without limit will allow U.S. lawmakers avoid
tackling the nation’s pressing budget and fiscal problems.
Lawmakers are struggling to cut a budget deal to avoid the
so-called fiscal cliff of big tax increases and spending cuts
set to begin Jan. 1. If nothing is done, the United States faces
another recession.
“Only the Congress of the United States can now save us from
fiscal perdition. The Federal Reserve cannot,” Fisher said at a
conference at Stanford University.
Fisher saved his sharpest criticism – and most colorful
metaphor invoking both a popular children’s movie character and
a philosophical phrase dating from the 17th century – to warn
against monetary policy that tries to do too much.
“We dare not become the central bank counterpart to
Congress,” he said, “by adopting a Buzz Lightyear approach of
‘To infinity and beyond!’ by endlessly purchasing U.S.
Treasuries and agency debt so as to encumber future generations
of central bankers with Hobson’s choices when it comes to
undoing what seems contemporarily appropriate.”
Bernanke in his speech on Thursday steered clear of
specifics on policy, but said the Fed will continue to do what
it can to support that sector of the economy.
William Dudley, the dovish president of the Federal Reserve
Bank of New York, was set to give a speech later on Thursday.
