–Bar Set ‘High’ For Another QE Program

By Yali N’Diaye

FT MYERS, Florida (MNI) – Atlanta Federal Reserve Bank President
Dennis Lockhart said Friday he favors “playing out” the second round of
quantitative easing as it was “originally designed.”

He also said it would take a significant change for him to support
a further round of quantitative easing going forward, and the bar set
“high.”

Speaking to reporters following a speech at the Bonita/Estero
Market Pulse Conference at the Florida Gulf Coast University, Lockhart
said he does not expect any major effect from developments in Japan, the
Middle East and North Africa though it may be too early to tell.

“At the moment I don’t see a major effect of the developments in
Japan,” he said, but added.”It’s a bit early to say what effect that
will have and through what channels we’ll see an effect.”

The effect on the U.S. economy, from events in the Middle East and
Libya in particular, “is really a question of oil prices,” he noted,
adding that how it will play out is “unpredictable.”

Earlier Friday, Lockhart said the second round of quantitative
easing remains “appropriate” in light of current and expected economic
conditions.

“The policy that was set last year continues to make sense to me,”
he said, referring to the plan to purchase $600 billion assets through
June. “I favor playing it out as originally designed and as originally
communicated.”

Given the “net positive outlook” he described in his speech, he
said, “The bar is high to have another significant QE or large scale
asset purchase program given the outlook that I have.”

Asked about the recently-announced unwinding of the Treasury’s
portfolio of $142 billion mortgage-backed securities, he said he does
not know at this point whether “the intersection of the two would pose a
challenge,” referring to the Fed’s own unwind when time comes.

He declined to comment on the timing of the Fed’s portfolio unwind,
but said it would be part of a broader exit program.

And when time comes to sell those assets, he stressed the need to
proceed in a way that is not disruptive to the underlying mortgage
markets.

Lockhart reaffirmed his confidence inflation will settle at a pace
consistent with the Fed’s mandate, noting in response to a question from
the audience that while short-term inflation expectations have risen,
long-term expectations have been more stable.

He acknowledged, however, that a sustained oil price hike could
have a dampening impact on growth. Still, he expects the Fed’s price
stability mandate to be attainable.

Lockhart, however, said in his speech that he is “prepared to
support a change of policy if evidence accumulates that the low and
stable inflation objective is at risk.”

Asked by MNI to elaborate on that view, he said he is prepared to
reconsider “extended period” policy.

“Certainly communication would be one of the factors that would
signal a change of sentiment,” he said.

In the area of communication, when asked by MNI whether the Fed’s
announcement Thursday that Fed Chair Ben Bernanke will hold press
briefings after four FOMC meetings was a tactical decision related to
current events, Lockhart said that was not the case.

The timing of the decision should not be interpreted “as a
particularly tactical decision based upon current circumstances,” he
told reporters. “It is more of a progression of steps to become more
transparent and to meet the needs of communication with the public.”

** Market News International **

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