Fed undecided on more easing: Dudley# Stock
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http://www.reuters.com/article/2012/03/19/us-usa-fed-dudley-idU
(Reuters) - The Federal Reserve has not yet decided whether to embark on a
third round of quantitative easing, or QE3, though it remains an option, an
influential Fed official said on Monday.
New York Fed President William Dudley, a close ally of Chairman Ben Bernanke
, painted a mixed picture of the economy, tempering recent signs the
recovery is gaining speed with warnings that it could just as easily stall
out.
"Nothing has been decided," he said of QE3, in which the Fed would make
large-scale asset purchases in an attempt to lower rates and give the
economy another controversial shot of adrenaline.
"It all depends on how the economy evolves," Dudley added. "It's about costs
and benefits, and if we get to a point where we think the benefits of
another program of QE outweigh the costs, then we'll certainly do so."
Dudley, like Bernanke in recent testimony to Congress, defended the central
bank's ultra-easy policy stance but did not offer any guidance on what more
the Fed was prepared to do to help the recovery and ratchet down the
unemployment rate, which remains a high 8.3 percent.
Another Fed official said he believes it would do the economy no good for
the central bank to ease further.
"We have filled the tanks, there is plenty of liquidity. We need no more,"
Dallas Federal Reserve President Richard Fisher told a roundtable discussion
at a business event in London.
Fisher, an outspoken policy hawk who has been critical of the Fed's last
round of asset purchases, is not a voter on the central bank's policy-
setting panel this year.
2013 OR 2014?
After a meeting in Washington last week, the Fed's policy-setting committee
made no policy change and gave few clues on how it interpreted recent jobs
growth, coupled as it has been with worries over GDP growth and oil price-
driven inflation.
The committee did, however, restate its expectation to keep interest rates
ultra-low through late 2014. Asked about that on Monday, Dudley said: "They
(rates) might increase sooner, they might increase later, depending on how
the economy evolves.
"If the economy were to change in a meaningful way then obviously we would
change our forecast."
Economic reports in recent weeks have supported an upbeat view about the
recovery, and many in financial markets have begun to lower expectations the
Fed would have to take further steps to bolster growth.
After the Fed's January meeting, financial markets were pricing in a first
rate hike by July 2014. Now - after reports showing employers added a total
of 511,000 workers in January and February - they are pricing in a first
rate hike by July 2013.
Benchmark yields were hovering near four-month highs on Monday as investors
pared bond holdings on signs of a strengthening economy and some
stabilization in Europe's debt troubles.
Dudley said economic activity is not yet strong or sustained enough to put a
dent in the economy's "slack," which is keeping many Americans out of work
some three years after the deep recession ended.
"The incoming data on the U.S. economy has been a bit more upbeat of late,
suggesting that the recovery may be finally establishing a somewhat firmer
footing," Dudley said, citing expanding GDP late last year, payrolls, sales
of motor vehicles, and somewhat firmer housing starts.
"While these developments are certainly encouraging, it is far too soon to
conclude that we are out of the woods," Dudley, a policy dove with a
permanent vote on the Fed's policy-setting committee, told a gathering of
the Long Island Association before touring a nearby music products
manufacturer, D'Addario & Co.
GASOLINE AND OTHER HEADWINDS
The central bank has kept interest rates near zero since late 2008 and
bought $2.3 trillion in long-term securities to help revive the economy
after the 2007-2009 recession.
Upbeat data so far this year has tempted some, including some Fed
policymakers, to say the recovery is well under way and that the Fed will
take no further steps.
Yet Bernanke and others have said more bond purchases remain an option. Last
year, Dudley was among the most vocal about the efficacy of buying mortgage
-based securities to help revive that sector of the economy.
Dudley warned that higher gasoline prices are "definitely" a risk to the
world's largest economy, as they crimp consumers' ability to spend on other
items. But he did not see higher pump prices fueling broader inflation.
"The upward pressure on prices caused by rising gasoline are offset by
downward pressure on prices caused by all the excess slack in the U.S.
economy," he said. "It's very hard to have an inflation problem when
compensation costs are rising quite slowly."
The annual rate of core inflation, Dudley argued, "has peaked and we expect
it to begin to decline later this year." He added that inflation
expectations "remain well anchored."
Besides gas, other headwinds include impediments to the housing sector,
fiscal drags at the federal and state levels, and risks that foreign growth
is weaker than expected, Dudley said.
Bernanke, who along with Dudley spearheaded the Fed's unprecedented and easy
policy steps, is set to deliver a public lecture on Tuesday.
(Additional reporting by Mark Felsenthal in Washington and Ana Nicolaci da
Costa and Richard Hubbard in London; Editing by Andrea Ricci and Padraic
Cassidy)
(Reuters) - The Federal Reserve has not yet decided whether to embark on a
third round of quantitative easing, or QE3, though it remains an option, an
influential Fed official said on Monday.
New York Fed President William Dudley, a close ally of Chairman Ben Bernanke
, painted a mixed picture of the economy, tempering recent signs the
recovery is gaining speed with warnings that it could just as easily stall
out.
"Nothing has been decided," he said of QE3, in which the Fed would make
large-scale asset purchases in an attempt to lower rates and give the
economy another controversial shot of adrenaline.
"It all depends on how the economy evolves," Dudley added. "It's about costs
and benefits, and if we get to a point where we think the benefits of
another program of QE outweigh the costs, then we'll certainly do so."
Dudley, like Bernanke in recent testimony to Congress, defended the central
bank's ultra-easy policy stance but did not offer any guidance on what more
the Fed was prepared to do to help the recovery and ratchet down the
unemployment rate, which remains a high 8.3 percent.
Another Fed official said he believes it would do the economy no good for
the central bank to ease further.
"We have filled the tanks, there is plenty of liquidity. We need no more,"
Dallas Federal Reserve President Richard Fisher told a roundtable discussion
at a business event in London.
Fisher, an outspoken policy hawk who has been critical of the Fed's last
round of asset purchases, is not a voter on the central bank's policy-
setting panel this year.
2013 OR 2014?
After a meeting in Washington last week, the Fed's policy-setting committee
made no policy change and gave few clues on how it interpreted recent jobs
growth, coupled as it has been with worries over GDP growth and oil price-
driven inflation.
The committee did, however, restate its expectation to keep interest rates
ultra-low through late 2014. Asked about that on Monday, Dudley said: "They
(rates) might increase sooner, they might increase later, depending on how
the economy evolves.
"If the economy were to change in a meaningful way then obviously we would
change our forecast."
Economic reports in recent weeks have supported an upbeat view about the
recovery, and many in financial markets have begun to lower expectations the
Fed would have to take further steps to bolster growth.
After the Fed's January meeting, financial markets were pricing in a first
rate hike by July 2014. Now - after reports showing employers added a total
of 511,000 workers in January and February - they are pricing in a first
rate hike by July 2013.
Benchmark yields were hovering near four-month highs on Monday as investors
pared bond holdings on signs of a strengthening economy and some
stabilization in Europe's debt troubles.
Dudley said economic activity is not yet strong or sustained enough to put a
dent in the economy's "slack," which is keeping many Americans out of work
some three years after the deep recession ended.
"The incoming data on the U.S. economy has been a bit more upbeat of late,
suggesting that the recovery may be finally establishing a somewhat firmer
footing," Dudley said, citing expanding GDP late last year, payrolls, sales
of motor vehicles, and somewhat firmer housing starts.
"While these developments are certainly encouraging, it is far too soon to
conclude that we are out of the woods," Dudley, a policy dove with a
permanent vote on the Fed's policy-setting committee, told a gathering of
the Long Island Association before touring a nearby music products
manufacturer, D'Addario & Co.
GASOLINE AND OTHER HEADWINDS
The central bank has kept interest rates near zero since late 2008 and
bought $2.3 trillion in long-term securities to help revive the economy
after the 2007-2009 recession.
Upbeat data so far this year has tempted some, including some Fed
policymakers, to say the recovery is well under way and that the Fed will
take no further steps.
Yet Bernanke and others have said more bond purchases remain an option. Last
year, Dudley was among the most vocal about the efficacy of buying mortgage
-based securities to help revive that sector of the economy.
Dudley warned that higher gasoline prices are "definitely" a risk to the
world's largest economy, as they crimp consumers' ability to spend on other
items. But he did not see higher pump prices fueling broader inflation.
"The upward pressure on prices caused by rising gasoline are offset by
downward pressure on prices caused by all the excess slack in the U.S.
economy," he said. "It's very hard to have an inflation problem when
compensation costs are rising quite slowly."
The annual rate of core inflation, Dudley argued, "has peaked and we expect
it to begin to decline later this year." He added that inflation
expectations "remain well anchored."
Besides gas, other headwinds include impediments to the housing sector,
fiscal drags at the federal and state levels, and risks that foreign growth
is weaker than expected, Dudley said.
Bernanke, who along with Dudley spearheaded the Fed's unprecedented and easy
policy steps, is set to deliver a public lecture on Tuesday.
(Additional reporting by Mark Felsenthal in Washington and Ana Nicolaci da
Costa and Richard Hubbard in London; Editing by Andrea Ricci and Padraic
Cassidy)
