Bloomberg News

Fed’s Lockhart ‘Skeptical’ More Bond-Buying Will Aid Growth

November 30, 2011

(Updates with remarks on policy in seventh paragraph, Yellen comment in 10th paragraph.)

Nov. 29 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said expanding securities purchases is unlikely to give a sufficient boost to U.S. growth, without ruling out the strategy or other easing options.

“I am skeptical that further asset purchases will produce much gain in terms of increased economic activity,” Lockhart, who votes on monetary policy next year, said in a speech in Atlanta. “I don’t believe further bond purchasing by the Fed is a potent policy option given the set of circumstances we currently face.”

Fed policy makers are discussing whether to increase record monetary stimulus through a third round of securities purchases or being more specific about how long interest rates will remain close to zero. Lockhart has supported the use of unconventional policy instruments in August and September to revive a recovery that has left the unemployment rate stuck near 9 percent or higher for more than 30 months.

“That is not to say that such a policy action would not be powerful and appropriate in other circumstances,” Lockhart said of additional asset purchases. “I don’t think any option should be taken off the table.”

The Federal Open Market Committee in August pledged to hold interest rates near zero until mid-2013 and in September announced it would swap $400 billion of short-term debt for longer-term securities in a bid to lower borrowing costs.

‘Steady’ Interest Rate

Lockhart, speaking at an economic outlook conference sponsored by the University of Georgia’s Terry College of Business, said that “at this time my notion of appropriate monetary policy” is “holding steady” the benchmark federal funds rate near zero and keeping the balance sheet “steady at current scale.”

Stocks pared gains after Lockhart’s remarks. The Standard & Poor’s 500 Index rose 0.3 percent to 1,195.71 at 2:26 p.m. in New York after increasing as much as 0.9 percent. Yields on 10- year Treasuries fell less than 1 basis point, or 0.01 percentage point, to 1.97 percent.

Lockhart told reporters after his speech that “incipient recession, rising unemployment and an economy headed toward deflationary conditions would be conditions in which it might be appropriate to consider the tool” of additional asset purchases. “We are not close” to the “severe conditions” that might prompt such a move, he said.

‘Encouraging’ Credit Growth

He said it’s “encouraging” that bank credit growth is “picking up a little bit” even as some financial institutions are still repairing their finances. “That is reflecting somewhat improved credit demand. Businesses are more of a mind to expand,” Lockhart said to reporters.

Fed officials have differed this month over whether more stimulus may be needed to reduce unemployment more quickly. Policy makers next meet Dec. 13 in Washington.

Fed Vice Chairman Janet Yellen said today that the central bank has leeway to spur the U.S. recovery with more action. “The scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of longer-term financial assets,” Yellen said in San Francisco.

St. Louis Fed President James Bullard, by contrast, said Nov. 15 that it would take a deterioration in the economy to warrant more easing because action risks a rise in inflation.

Lockhart said he expects an annual pace of 2.5 percent to 3 percent growth in the fourth quarter, compared with 2 percent in the third period, with “continued moderate growth” in 2012.

‘Unacceptably High’

“Growth has picked up from earlier in the year,” he said. “Inflation appears to be settling into a range that I consider consistent with the FOMC’s price stability mandate. The economy is producing jobs on a net basis, just not at a pace and volume sufficient to materially reduce the unacceptably high rate of unemployment.”

Lockhart said one reason forecasters were wrong earlier in the recovery is they didn’t give enough weight to research by economists Carmen Reinhart and Kenneth Rogoff finding anemic growth for long periods after financial crises.

“It is now fairly clear that the Reinhart-Rogoff thesis is the appropriate one,” he said.

Some data in recent weeks have been better than forecast by economists. Consumer confidence climbed in November by the most in more than eight years as Americans grew more upbeat about employment and income prospects, the Conference Board’s index showed today.

Payrolls may increase by 120,000 workers in November after rising 80,000 in October, according to the median forecast of 59 economists in a Bloomberg News survey before a Dec. 2 report from the Labor Department.

--Editors: Scott Lanman, Carlos Torres

To contact the reporter on this story: Steve Matthews in Atlanta at

To contact the editor responsible for this story: Chris Wellisz at

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