By Steven K. Beckner
Even less enthusiastic, Philadelphia’s Charles Plosser said
Wednesday that, “It is difficult, in my view, to see how additional
asset purchases by the Fed, even if they move interest rates on long –
term bonds down by 10 or 20 basis points, will have much impact on the
near-term outlook for employment.”
“Sending a signal that monetary policymakers are taking actions in
an attempt to directly affect the near-term path of the unemployment
rate, and then for those actions to have no demonstrable effects, would
hurt the Fed’s credibility and possibly erode the effectiveness of our
future actions to ensure price stability,” Plosser warned.
“It also risks leading the public to believe that the Fed is
seeking to monetize the deficit and make it more difficult to return to
normal policy when the time comes,” he warned.
Setting a high bar for supporting QE, Plosser said, “Were
deflationary expectations to materialize … I would support appropriate
steps to raise expectations of inflation, including, perhaps, aggressive
asset purchases coupled with clear communication that our goal is to
combat deflationary expectations.”
“But for such a strategy to be successful, the public must believe
that the Fed can and will act to combat those expectations,” Plosser
said. “The Fed must be credible. Protecting that credibility is why,
based on my current outlook, I do not support further asset purchases of
any size at this time.”
Most vociferous of all in opposition was Dallas Fed President
Richard Fisher who said Friday that returning to crisis-like quantiative
easing measures would probably not help an admittedly “subpar” economic
recovery very much and could well backfire.
“The efficacy of further accommodation at this point is not crystal
clear,” said Fisher, saying that liquidity is already “abundant” but
that firms are reluctant to hire and invest because of uncertainty about
tax and regulatory policy.
“While none of us are satisfied with the current pace of economic
expansion and job creation, presently it is not clear that conditions
warrant further crisis-like deployment of the Fed’s arsenal,” Fisher
said.
“Besides, it would be difficult to build a case that the main
recipient of further credit extensions, namely the U.S. Treasury, or
borrowers whose rates are based on historically low spreads over
Treasuries, have difficulty accessing the capital markets,” he said.
So, Fisher continued, “it is not clear that the benefits of further
quantitative easing outweigh the costs … . Barring an unforeseen
shock, I have concerns about the efficacy of further expanding the Fed’s
balance sheet until our political authorities better align fiscal and
regulatory initiatives with the needs of job creators.”
“Otherwise, further quantitative easing might be pushing on a
string,” he said. “In the worst case, it could flood the engine of the
economy with gas that might later ignite inflation.”
“Of course, if the fiscal and regulatory authorities are able to
dispel the angst that businesses are reporting, further accommodation
might not even be needed,” he added.
In yet another speech, non-voter Atlanta Fed President Dennis
Lockhart withheld judgment on what the FOMC should do, saying, “in the
coming weeks monetary policymakers must come to grips with the question
of whether there is anything they can do to improve the situation in the
economy and, if so, what that action should be.
“The circumstances of weak recovery, persistent unemployment,
dangerously low inflation, and the policy interest rate (the primary
tool of modern monetary policy) at the zero lower bound present a tough
analytical challenge,” he said.
Lockhart said the debate over whether the Fed can effectively
provide more stimulus via QE “will intensify over the coming weeks.” He
said the FOMC will have to ask “Will it work? And, how much would be
needed to make a difference?” He said “a consensus on these pivotal
questions remains to come together.”
Fed Chairman Ben Bernanke stuck to discussing the implementation of
the financial overhaul legislation in Thursday Congressional testimony.
In an appearance the same day before a group of teachers, he did not
talk about what additional stimulus the Fed might provide, but said,
“certainly have, in the near term and the medium term, … some very
difficult challenges.”
“Even though our economy is stabilized and growing, clearly it is
still a very difficult time for many Americans,” said Bernanke. “The
unemployment rate is still almost 10%, inflation is quite low, and the
Federal Reserve has the responsibility — we’re not the only
policymakers who effect the economy … but we have to do our part to
help the economy recover and make sure that jobs come back to the United
States.”
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** Market News International **
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