Lingering uncertainty as Fed officials weigh trimming QE3

Wed Sep 4, 2013 9:17pm EDT
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By Ann Saphir and David Bailey

PORTLAND, Ore/LA CROSSE, WI (Reuters) - One top Federal Reserve official said on Wednesday he was open-minded about reducing stimulus this month, as investors largely expect the central bank to do, while another policymaker said the U.S. central bank should actually do more for the economy.

The comments by San Francisco Fed President John Williams and Narayana Kocherlakota, his counterpart in Minneapolis, reflect the uncertainty that lingers over financial markets two weeks before the Fed's 19 policymakers meet to decide whether to adjust a $85-billion monthly bond-buying program.

The quantitative easing program, known as QE3 because it is the Fed's third such massive effort to boost growth and employment since the Great Recession, was launched a year ago. U.S. unemployment was 7.4 percent in July, down from 8.2 percent a year earlier, suggesting to many economists that the Fed is ready to reduce the pace of buying.

Still, Williams, a policy centrist speaking before a group of business and community leaders in Portland, Oregon, said he has not yet made up his mind.

"I'm going into this meeting with an open mind," he said, adding that his view will depend not only on how the economic data comes in between now and then - including the August jobs report on Friday - but also on what his colleagues have to say.

Broadly, Williams said "the best course forward" is a plan Fed Chairman Ben Bernanke articulated in June in which QE3 would be trimmed later this year and ended by mid-2014, as long as the economy grows as expected.

The Fed has been buying Treasuries and mortgage-backed securities since last September to push down long-term borrowing costs, and has promised to continue the program until there is substantial improvement in the labor market outlook.

The central bank has also said it will keep interest rates near zero until the unemployment rate falls at least to a threshold of 6.5 percent, as long as inflation expectations remain below 2.5 percent.   Continued...

Minneapolis Federal Reserve Bank President Narayana Kocherlakota speaks at a macro-finance conference hosted by the Boston Federal Reserve Bank and Boston University in Boston, Massachusetts November 30, 2012. REUTERS/Brian Snyder