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Fed officials agree: no more easing

May 01 2012 10:36 Reuters

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Los Angeles - wo top Federal Reserve officials - one with a dovish, employment-focused bent, and the other a self-avowed inflation hawk - on Monday both said they see no need for the US central bank to ease monetary policy any further.

But the comments, from San Francisco Fed President John Williams and Dallas Fed President Richard Fisher, do not mean they believe the central bank should quickly move to raise rates, which it has kept near zero for more than three years.

The economy grew at a 2.2% pace last quarter, down from its 3% growth rate in the final three months of the year. Recent economic data, including a gauge of business activity in the US Midwest, signal growth may slow further this quarter.

"I don't think we are ready to exit yet," Fisher, an inflation hawk, told Reuters at the Milken Institute Global Conference in Los Angeles.

Fisher said he would oppose the extension of Operation Twist, the Fed bond-buying programme that is set to end in June, but stopped short of calling for outright monetary tightening.

"We'll have to see how the year works out," he said.

Speaking to the German financial daily Handelsblatt, San Francisco Fed's Williams suggested the Fed might need to push rates still lower if the US unemployment rose substantially and growth slowed.

"But I'm today more optimistic about the economy than in January," Williams, a voter this year on the Fed's policy-setting panel, was quoted as saying.

"So far there is no need for further monetary measures," he said, pointing to an improvement in US consumption and available income as well as positive signs in the property market.

Fed policymakers have been at odds for months over whether continued high unemployment - which registered 8.2% in March - and a moderate pace of economic growth should force them to try to push rates down further in hopes of boosting the recovery.

Doves like Chicago Fed President Charles Evans have called for further action, while hawks like Richmond Fed President Jeffrey Lacker have opposed it.

Last week, the Fed held its policy line, reiterating its expectation that it will need to keep rates low through late 2014. And while Fed Chairperson Ben Bernanke held the door open to further easing, he did not suggest it was imminent.

'Eat your vegetables'

Fisher's opposition to further easing is rooted less in a conviction that the recovery has strengthened than in his long-held view that lower rates are doing little to boost jobs and may simply be giving Congress an excuse not to tackle the difficult job of reining in deficits and the national debt.

"By providing monetary accommodation, we are saying, in essence, 'Congress, you better eat your vegetables, or we are going to serve you a big plate of monetary cookies,'" Fisher said at a panel on job creation at the Global Conference.

The Fed's programme of bond purchases is pushing down the price of debt, interfering with a pricing mechanism that would otherwise force Congress to come to terms with its "fiscal misfeasance," he said.

"We have children in Congress," he said. "They need to be disciplined.

Williams is due to speak to the conference on Tuesday, along with fellow doves Chicago Fed's Evans and Atlanta Fed President Dennis Lockhart.

Philadelphia Fed President Charles Plosser, an opponent of further easing, is also scheduled to speak on Tuesday in Southern California.

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