Fed prepared to act, but only if economy weakens

Thu Apr 12, 2012 7:01pm EDT
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By Pedro Nicolaci da Costa

WASHINGTON (Reuters) - U.S. Federal Reserve officials, out on a speaking spree on Thursday, suggested the economy would have to deteriorate for the central bank to consider additional monetary stimulus.

Policymakers did hint at the possibility of further action. Fed Board Governor Sarah Raskin said the U.S. central bank stands ready to do all it can to support the economic rebound, while William Dudley, president of the New York Fed, emphasized the recovery's fragility.

"Some economic news has been encouraging and may be suggesting that the pace of the recovery is picking up," Raskin said, citing the drop in the unemployment rate over the past six months and the creation of about 1 million jobs. "However, the national economic recovery clearly has a long way to go."

Late Wednesday the Fed's influential vice chair, Janet Yellen, said the central bank's policy of near-zero interest rates is appropriate given high unemployment and the headwinds facing the economy. She added the central bank has a variety of options were it to engage in further asset purchases, and that the Fed remains "quite willing" to take whatever actions are necessary to achieve its mandate.

However, that message was not unanimous. While Yellen defended the Fed's guidance that it would likely leave rates near zero until late 2014, Philadelphia Fed President Charles Plosser on Thursday said the central bank should move away from the approach of suggesting a specific calendar date for the start of rate hikes.

"I'd like to get us to move away from that and substitute something that's a little more systematic and coherent about how it depends on the economy," Plosser told reporters after a speech to economists.

The Fed next meets on April 24-25, and it is not expected to take any fresh policy measures at that time, but rather use the meeting to discuss the latest economic developments and further refinements to its communications strategy.

Still, a Reuters poll conducted after last week's release of disappointing March employment figures found most Wall Street primary dealers think another round of bond-buying will eventually take place.   Continued...

Federal Reserve Board Governor Sarah Bloom Raskin delivers a speech entitled "Mortgage Servicing Issues" before the National Consumer Law Center conference in Boston, Massachusetts November 12, 2010. REUTERS/Brian Snyder