Federal Reserve Bank of Atlanta President Dennis Lockhart said he wants to continue central bank asset purchases through the end of this year to help improve the job market.
“Considering current labor market conditions, I think continuing the asset purchase program to support the recovery and to improve employment conditions remains appropriate for now,” Lockhart said on Monday in prepared remarks in Knoxville, Tennessee. “Given the outlook and associated risks, I am comfortable with sticking with the current approach at least into the second half of the year.”
Lockhart supported the US Federal Open Market Committee on Jan. 30 to continue US$85 billion in monthly bond buying. Several participants “emphasized that the committee should be prepared to vary the pace of asset purchases” in reaction to changes in the economic outlook, according to meeting minutes released last week.
“I would support completing a program that goes through the end of the year,” Lockhart told reporters after his speech at the University of Tennessee. “The employment situation justifies trying to continue [monetary stimulus]. In some form I think we can justify going through year-end.”
Slowing purchases as the employment market improves is an option worth studying, Lockhart said.
“Certainly the notion of tapering it off and reducing the overall scale of purchases could very well be consistent” with his view of keeping the program to year end, the Atlanta Fed president told reporters. “The idea of tapering is certainly under consideration and in the air [in] terms of public commentary and I think it is a legitimate thing for the committee to consider.”
St Louis Federal Reserve President James Bullard has proposed varying monthly purchases, an idea also endorsed by Dallas Federal Reserve President Richard Fisher.
The central bank, seeking to stoke growth and bring down 7.9 percent unemployment, has expanded its balance sheet to a record exceeding US$3 trillion.
Lockhart also told reporters he was watching the possibility of asset imbalances.
“Certainly there is a strong search for yield going on,” he said. “Money has been channeled to certain asset classes,” such as real estate investment trusts.
“I am not prepared to say there are true bubble asset classes that have developed. But I do think we have to continue to be attentive to market developments,” he said.
In his prepared text, Lockhart said benefits from asset purchases outweigh potential risks.
“I do not think that monetary policy has yet crossed the line where the benefits of the current policy — specifically the quantitative easing element — are swamped by serious concerns over problems the policy might be creating for the longer term,” Lockhart said.
The US economy is likely to grow about 2 percent in the first quarter and 2 percent and 2.5 percent this year, supported by a recovery in housing and strength in the auto industry, Lockhart said.