Two senior Federal Reserve officials raised concerns about further monetary easing on Thursday but only one — one of the Fed’s most consistent policy hawks — expressed firm opposition to a move.
Kansas City Federal Reserve Bank President Thomas Hoenig, who has dissented against the U.S. central bank’s extremely easy money policies at every meeting policy-setting meeting this year, was blunt in stating distaste for further Fed help.
“There is discussion in the media, and broadly speaking, even amongst Federal Reserve policy members that we need to increase our stimulus for monetary policy. Now, I happen to disagree with that,” he said.
Dallas Fed President Richard Fisher, also considered as among the most hawkish Fed officials, said the U.S. central bank stands to gain little by pumping more cash into the U.S. economy, and risks sending “confusing signals” to businesses.
However, Fisher, despite his concerns, said he remains undecided about whether to oppose another easing campaign.
“I am not making a final decision here, I’m just saying we have a lot to think about,” said Fisher, who does not have a vote this year on monetary policy, but will be in 2011.
As the U.S. recovery faltered over the summer, the Fed pivoted from anticipating a withdrawal from its extraordinary support for the economy to considering how it could supplement it to support jobs and growth.
Many analysts expect the Fed to announce at its next meeting on November 2-3 that it will resume purchases of Treasury securities to drive down interest rates and spur economic activity, barring a surprising rebound in employment.
Statements from Fed officials since their last meeting on September 21 suggest a growing consensus building behind further easing, although Fisher and Hoenig have been steadfast in opposition.
The Fed has already slashed overnight borrowing costs to near zero and pumped about $1.7 trillion into the economy through purchases of longer-term Treasury and mortgage-related debt to lower other interest rates.
SOME SIGNS OF IMPROVEMENT
Data on Thursday hinted at some improvement in economic conditions, but analysts said it was probably not enough to undermine support for more Fed action with the jobless rate at a lofty 9.6 percent and little prospect for pulling it down soon.
New claims for jobless benefits hit almost a three-month low last week, suggesting some let-up in the labor market’s distress, and sales at U.S. retail chains last month showed unexpected strength.
However, in evidence of how cautious consumers remain after the deep recession, the Fed said on Thursday that U.S. consumer credit outstanding declined for the seventh straight month in August as credit card debt continued to fall.
Speaking to a business group, Hoenig said the U.S. economic recovery is proceeding modestly and he repeated his belief that the Fed should raise benchmark rates to 1 percent and hold them there to see how the expansion unfolds.
Hoenig said that although unemployment is painfully high, the Fed must also keep an eye on its mandate to maintain long-term price stability, which could be jeopardized by leaving financial conditions so accommodative.
“With this much liquidity in the system, if it stays there as the economy continues to improve and perhaps strengthens … then there will be this enormous liquidity and there will be tendencies for inflationary impulses to rise,” he said.
Fisher, while acknowledging the recovery is subpar, reprised his argument that the responsibility to stimulate further growth lies with fiscal and regulatory authorities, not the central bank. He sees uncertainty on taxes and regulation restraining business spirits.
“I instinctively understand the impulse to put the monetary pedal to the metal to try to move the needle on employment growth,” Fisher told the Economic Club of Minnesota. “And yet the efficacy of further accommodation at this point has yet to be established.”
