A third round of large-scale asset purchases by the US Federal Reserve is not needed and would compound the difficulties of tightening monetary policy when the time finally comes, a top Fed official said on Thursday.
“Personally I don’t see how you can justify it given the state of the current economy,” Dallas Federal Reserve president Richard Fisher said in remarks that underscored the sharp divide within the US central bank over what to do in the face of an uneasy economic recovery.
Earlier on Thursday, Chicago Federal Reserve president Charles Evans advocated a much more forceful approach in tackling unemployment, even if it means jumping into a potentially controversial new round of quantitative easing, or QE3.
“I would be very aggressive,” Evans told a small group of reporters.
Fisher and Evans stand on opposite ends of a wide philosophical spectrum of the 17 Fed policymakers, a divide that was clear last week when the central bank anonymously published their individual forecasts: Some expect rates to rise this year, while others don’t see that until 2016.
US Federal Reserve Chairman Ben Bernanke and others have suggested that more asset purchases may be necessary if unemployment, now at 8.5 percent, remains high, if inflation is subdued and if the US economic recovery fails to gain traction.
Inflation has slowed over the last couple of months and the Fed expects it to ease this year. Core inflation is now running at about 1.7 percent.
Fisher, an outspoken policy hawk, acknowledged that the Fed may have more latitude to pursue easy-money policies if inflation runs below its newly set 2 percent target — though he added that such a move does not guarantee more jobs and that he personally would not advocate it.
“Again it’s a question of efficacy,” he told reporters after a speech to the Headliners Club of Austin. “Is it needed? I don’t think so. And secondly it compounds the difficulty of an exit when the right time comes.”
In a big step toward transparency, the Fed last week adopted the explicit inflation target, but it declined to likewise set a target for its other main concern — unemployment — arguing that monetary policy has little direct influence on jobs.
Already the Fed has bought about US$2.3 trillion in long-term securities and has kept interest rates near zero for more than three years in an unprecedented attempt to revive the economy after a harsh recession that doubled the jobless rate.
Bernanke, testifying before Congress on Thursday, found himself on the defensive against charges from Republican lawmakers that the Fed’s easy-money policies and focus on employment risked sparking inflation. The chairman said the economy still needed plenty of support, aligning himself more with the doves like Evans than with the hawks.