Two Fed officials say aggressive policy action still needed

Tue Nov 12, 2013 5:35pm EST
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By Jonathan Spicer and David Bailey

MONTGOMERY, Ala./ST. PAUL, Minnesota (Reuters) - The Federal Reserve should keep monetary policy ultra-easy given the economy's tepid growth and an uncertain outlook for jobs growth, two senior officials said on Tuesday, reinforcing views that the U.S. central bank will not taper bond buying before next year.

At the same time, last month's government shutdown may undermine the reliability of economic data through December, said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. That could provide another reason not to expect policy action when the Fed holds its next policy meeting, on December 17-18, though Lockhart would not rule it out.

"Monetary policy overall should remain very accommodative for quite some time," he told an economic forum in Montgomery, Alabama. "Even though the economy is growing, and we're making progress on unemployment, there are real concerns about whether the recent modest pace of GDP is enough to maintain employment momentum."

The economy picked up speed in the third quarter, but largely because businesses restocked their shelves. With growth in consumer spending the slowest in two years, the gain in business inventories may prove to have not been necessary, and the outlook for activity in the final three months of the year is dim.

Consumer and business confidence was also dented by a bitter budget battle in Washington that partially closed the government for 16 days last month.

Narayana Kocherlakota, president of the Minneapolis Fed, spoke even more strongly about the need for aggressive action to foster growth.

"Reducing the flow of (bond) purchases in the near term would be a drag on the already slow rate of progress of the economy toward the committee's goals," Kocherlakota told the Chamber of Commerce in St. Paul, Minnesota.

"Inflation remains weak, or very low by historical standards, by the (Fed's) goal of 2 percent per year, so there is no reason to be afraid of monetary stimulus," he said.   Continued...

Dennis Lockhart, President, Federal Reserve Bank of Atlanta, takes part in a panel discussion titled "Twist and Shout: The Limits of U.S. Monetary Policy" at the Milken Institute Global Conference in Beverly Hills, California May 1, 2012. REUTERS/Danny Moloshok