Fed officials differ on whether more easing needed

Chicago Federal Reserve Bank President Charles Evans

CHICAGO - Top Federal Reserve officials differed on whether the US central bank needs to be more aggressive in spurring economic growth, indicating another round of easing is far from certain.

Chicago Federal Reserve Bank President Charles Evans, one of the US central bank's strongest advocates for further monetary policy easing, said Wednesday he is flummoxed by the Fed's timidity in the face of high unemployment and low inflation.

However, his colleague, Atlanta Fed leader Dennis Lockhart, said the Fed would only need to act further if the economy took a turn for the worse or if Europe's simmering debt crisis boils over.

"I don't think the conditions have developed that require us to bring out bigger guns quite yet," Lockhart said in an interview with Nightly Business Report.

Lockhart, who unlike Evans wields a vote this year on the Fed's policy-setting panel, said policymakers' most recent action, extending a programme swapping shorter-term bonds it owns for longer-term ones to push down longer-term interest rates, serves to maintain the right level of help for the weak recovery.

An escalation of problems in Europe, a sudden slowing of US economic growth, a spike in job layoffs, or the risk of a deflationary spiral might be triggers for more Fed action that could include another round of bond buying, Lockhart said.

"If the circumstances call for it, more stimulus could be provided," he said.

The Atlanta Fed president's stance is as at the mid-point of Fed views that range from reluctance to further expand the central bank's underpinning of the modest recovery to those such as Evans who think more aggressive steps are urgently needed.

The Fed cut rates to near zero in December 2008 and has bought US$2.3 trillion (S$2.9 trillion) in bonds to pull the economy out of recession and spur an acceleration in growth. At its policy-setting meeting last week, Fed officials sharply slashed their gross domestic product forecasts for 2012 and 2013 and marked down the outlook for inflation.

Those changes to the US central bank's summary of economic projections, suggest progress on its twin goals of full employment and stable prices is slowing if not stalled.

Instead of reacting with a new round of bond buying to boost jobs, the Fed took the much more modest step of adding six months to an existing programme, known as Operation Twist, that is aimed at lowering long-term interest rates.

"I think if you look at our projections ... it's hard to understand why we wouldn't be willing to do more because the inflation outlook is lower than our objective," Evans told a small group of reporters at the Chicago Fed headquarters.

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