–But Bar For Another QE Remains ‘High’

By Yali N’Diaye

JACKSONVILLE, Fla (MNI) – Atlanta Federal Reserve Bank President
Dennis Lockhart, who will be a voting member of the Fed’s policymaking
FOMC next year, said Tuesday he would have supported the Committee’s
so-called Operation Twist as part of the overall effort to support
economic activity.

Answering reporters’ questions following a speech before the World
Affairs Council in Jacksonville, Lockhart added that further
accommodation should not be ruled out, including communication tools,
although the bar for quantitative easing remains “high.”

Had he been a voter, Lockhart “would have supported” the Fed’s
maturity extension program “as an incremental measure to add to the
package of accommodative policies that I look at as a composite
package,” he told reporters.

Overall, while the policy currently in place “is quite
accommodative,” Lockhart is not ruling out further accommodation “at
all.”

In particular, he said he is open to “some communication tools.”

Yet when it comes to quantitative easing — a large-scale asset
purchase program — he continues to see “a pretty high bar.”

He argued that such a policy “carries with it the risk of growing
the balance sheet substantially,” making it more “challenging” to
unwind.

What’s more, “it can influence inflation expectations, which I
think are central to managing good monetary policy,” Lockhart said.

“For those two reasons, the circumstances need to be quite
demanding to step up to another” quantitative easing program, he
concluded.

That said, “depending on circumstances, that too cannot be ruled
out.”

Indeed, where monetary policy heads next depends on how the
economic outlook evolves, Lockhart said, echoing comments he made
earlier in a speech.

For now, Lockhart expects U.S. GDP growth to range between 1% and
2% this year, with the pace building up modestly to 2% to 3% in 2012.

He told reporters there are “hopeful signs that the housing market
nationally is seeing the development of a bottom.”

On the inflation front, “At the moment I don’t see any indication
of deflationary conditions developing,” he said.

He repeated he expects disinflationary pressures to develop and
slow the pace of inflation going forward.

Earlier in his speech, he had expressed concerns that recent
readings of inflation had increased more than desired and more than
expected.

Asked about the need for a fiscal stimulus, Lockhart said while
long-term fiscal consolidation is needed, if a credible plan was in
place, “there is a strong argument for not initiating the cuts
immediately and letting the recovery continue to develop before the
effect of fiscal retrenchments takes place.”

** Market News International **

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