Federal Reserve Bank of Atlanta President Dennis Lockhart said Fed
officials are committed to record stimulus even as divergent views on
when to start paring back bond purchases create a “mixed message” to
investors.
“To the extent that the markets are seeing mixed messages, it simply
reflects the debate that’s going on among the colleagues on the Federal
Open Market Committee,” Lockhart said in a Bloomberg Television
interview in New York with Michael McKee. “The bigger picture is that
any adjustment is not a major policy shift.”
The yield on the 10-year Treasury note has surged in the past month
as some Fed officials have said the Fed could slow bond purchases.
Chairman Ben S. Bernanke, responding to a question, said May 22 that the
Fed could consider reducing the amount of Treasurys and mortgage debt
it buys within “the next few meetings” if officials see signs of
sustained improvement in the labor market.
The 10-year note yield rose to 2.13 percent at 2:45 p.m. in New York trading from 1.63 percent on May 2.
Lockhart, 66, said recent data, including a monthly decline in
manufacturing, reported by the Institute for Supply Management, suggest
the economy isn’t strong enough to justify a reduction in bond buying.
‘Very Mixed’
“The data we’re receiving are still very mixed,” he said. “The ISM
report this morning is a good example. I’m not getting a clear picture
of an economy that really is tracking with considerable momentum.”
“I’d tend to be a little more cautious, and say maybe August,
September or later in the year” would be time to consider slowing
purchases. “The issue can be on the table in any of those meetings.”
Lockhart also said a departure of Bernanke as Fed chairman at the end
of his second term in January isn’t a “foregone conclusion.”
“The important point is that speculation about Chairman Bernanke’s
retirement is not having any effect on our ability to formulate policy,”
the Atlanta Fed chief said. It’s “not really in any way feeding into
the policy deliberations.”
The policy-setting FOMC said May 1 that it will keep buying $85
billion a month in bonds to bolster growth and cut unemployment. The
central bank also pledged to keep interest rates near zero as long as
joblessness is above 6.5 percent and inflation is no more than 2.5
percent.
‘Modest Adjustment’
A “modest adjustment downward, in our purchase program” is possible
as “early as this summer,” San Francisco Fed President John Williams
said today. He doesn’t hold a policy vote this year.
Manufacturing in the U.S. unexpectedly contracted in May at the
fastest pace in four years, the Institute for Supply Management’s
factory index showed. The index fell to 49 from the prior month’s 50.7,
with 50 the dividing line between growth and contraction.
Inflation is not an immediate concern, Lockhart said. “Inflation
expectations appear to be well anchored and measures of inflation
expectations are really not indicating a move toward deflationary
territory,” he said. Still, “I don’t think we can dismiss downside risk
related to inflation.”
Inflation has fallen below the central bank’s 2 percent target. Price
gains were 0.7 percent from a year earlier in April, according to the
Fed’s preferred price gauge, which is tied to consumer spending
patterns.
Reduce Pace
In a May 22 interview, Williams said any move to reduce the pace of
bond buying could be followed by an increase should the economy weaken
again.
“Even if we do adjust downward our purchases, it doesn’t mean we’re
now in some autopilot of moving in the same direction,” Williams, 50,
said. “You could even imagine a scenario where we adjust it downward
based on good data and then adjust it back” if the economy weakened.
A former Georgetown University professor, Lockhart has led the
Atlanta Fed since 2007. The Atlanta Fed district includes Alabama,
Florida, Georgia, and portions of Louisiana, Mississippi and Tennessee.
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