Bloomberg News

Fed’s Lockhart, Bullard Oppose Additional Purchases of Assets

March 23, 2012

Federal Reserve district bank presidents James Bullard of St. Louis and Dennis Lockhart of Atlanta voiced opposition to any new round of bond purchases by the Fed amid signs of strengthening economic growth.

“We should hold the balance sheet where it is for the time being and watch how the economy evolves,” Lockhart said today in a speech in Washington. Bullard said in a speech in Hong Kong that with Fed policy “on pause, it may be a good time to take stock of whether we may be at a turning point.”

The remarks from Lockhart and Bullard, who have never dissented from a decision by the Federal Open Market Committee, reflect broadening sentiment on the panel that further easing may currently not be necessary. The Fed has held interest rates near zero since 2008 and purchased $2.3 trillion in bonds to spur growth after unemployment rose to as high as 10 percent in 2009. The jobless rate is now 8.3 percent.

The Fed is hosting a conference in Washington today and tomorrow to examine challenges for central bankers including the use of asset purchases to sustain liquidity during times of financial turmoil. Chairman Ben S. Bernanke opened the gathering by saying central bankers “have had to deploy a variety of new tools and approaches to carry out their responsibilities regarding monetary policy and the provision of liquidity, tools about which we still have more to learn.”

The Fed chairman didn’t indicate if he sees a need for a new asset-purchase program.

Economy Expanded

The economy expanded at a 3 percent annual rate in the fourth quarter, the fastest pace in more than a year, as households spent more freely, the government reported. Growth will probably slow to 2 percent this quarter, according to the median of 72 economists’ forecasts in a Bloomberg News survey from March 9 to March 13.

About 1.2 million jobs were created in the past six months, the most since the same period ended May 2006, Labor Department figures show.

Michael Feroli, chief U.S. economist at JPMorgan Chase, said he doesn’t believe the central bank wants to push forward with quantitative easing “given where the inflation data are.”

“If I am wrong, I think they would start signaling it in speeches,” he said. “There are certainly plenty of opportunities to do that.”

Dean Maki, chief U.S. economist for Barclays Capital Inc. and Julia Coronado, chief economist for North America at BNP Paribas, also don’t currently see a prospect that the Fed will provide more stimulus.

“There is little reason to ease further,” Maki said in an interview at the Fed conference titled, “Central Banking: Before, During, and After the Crisis.” The Fed is unlikely to take the option off the table entirely as their outlook might change if the economy deteriorates.

‘Significantly Weaker’

“I would expect QE3 if the growth or employment data turn significantly weaker,” he said.

Coronado said a new round of bond purchases “would require at least a softening in the data,” and that “a moderation in the pace of hiring combined with lackluster activity could do the trick.”

“A pickup in global financial market tensions could also help tip the scales,” she said in an interview at the central bank’s conference.

U.S. stocks rose as energy companies and oil rallied on a report that sanctions will reduce Iranian crude exports by 300,000 barrels a day.

The Standard & Poor’s 500 Index increased 0.3 percent at 1,397.11 at 4 p.m. in New York. The yield on the 10-year Treasury note dropped to 2.23 percent from 2.28 percent yesterday.

Nothing Decided

New York Fed President William C. Dudley stopped short of voicing an opinion on the option of new bond buying in a March 19 speech. “Nothing has been decided” on more bond purchases, he said, adding that while economic reports have improved, it’s “far too soon to conclude that we are out of the woods.”

As president of the New York Fed, Dudley holds a permanent vote on monetary policy decisions. The other Fed presidents rotate voting on policy this year. Atlanta’s Lockhart holds a vote, while Bullard votes next year.

Only Chicago Fed President Charles Evans has favored new stimulus in recent speeches.

“Clearly, more accommodation would be appropriate” because currently “the unemployment rate is substantially above reasonable measures of the natural rate,” Evans said yesterday in a speech in Washington.

-- With assistance from Steve Matthews in Atlanta. Editors: James Tyson, Kevin Costelloe

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Jeff Kearns in Washington at jkearns3@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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