The U.S. economy still needs the Federal Reserve’s super-easy monetary policy, a top official said on Thursday, but the recovery may be strong enough June that the central bank will not need to extend its current $600 billion bond-buying program.
“To put it bluntly, with unemployment too high and inflation too low — and both forecasted to stay that way over the next two years — we have missed on both of our policy objectives,” Chicago Federal Reserve Bank President Charles Evans told a group of business leaders in this manufacturing town northwest of Chicago.
“This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.”
The Fed has kept short-term rates near zero since December 2008, and is in the midst of buying $600 billion in Treasury securities to stimulate the economy and bring down borrowing costs further. The current round of asset-buying, slated to run through June, comes on top of $1.7 trillion in long-term assets bought in 2009 and 2010.
Although “open minded” about curtailing the current program, Evans suggested economic conditions would probably warrant completing it.
“It’s quite likely we will continue with the 600,” Evans, a voter on the Fed’s policy-setting panel this year and a consistent policy “dove, told reporters after his speech.
“It will not surprise me if at the time we get to June and we are looking at the economy, that things are sufficiently better that that might be enough.”
Speaking nearly simultaneously in Houston, Dallas Fed President Richard Fisher, one of Fed’s most outspoken inflation “hawks,” said he would not support any further easing beyond the current program and said there was evidence price pressures were building.
Core consumer prices in January rose at the fastest pace in more than a year, data on Thursday showed, suggesting a long period of slowing inflation had run its course.
Evans called the increase a “good” development, but said he was still concerned about inflation below the Fed’s 2 percent target, to which he does not see a return until at least 2014.
He dismissed concerns that the Fed’s easy monetary policy was fueling a global spike in commodity prices, blaming the increase instead on demand for resources from strong economies like India and China.
In fact, he said, boosting short-term inflation expectations in the U.S. “appropriately” is consistent with the Fed’s goal of keeping prices stable.
If unwelcome inflation start to build, he said, the Fed has the tools to bring it under control.
“We could turn very quickly if we needed. I don’t expect that we will need to,” he said.
