Fed’s Lockhart says he doesn’t now see need for more easing

April 3 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said he doesn’t see the need for additional asset purchases with the U.S. economy picking up and inflation close to the central bank’s 2% target.

“I would have to see some pretty severe circumstances before I endorse for another round of quantitative easing,” Lockhart said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “The outlook is positive enough that I am not sure I see the need for it.”

Chairman Ben S. Bernanke said last week that while a recent decline in the jobless rate is encouraging, continued accommodative policy will be needed to make further progress. The Federal Open Market Committee this year has said subdued inflation and economic slack will probably warrant exceptionally low rates through late 2014. The policy group upgraded its assessment of the economic outlook at its March 13 meeting following employment gains.

“I am more confident that the economy is gaining traction,” Lockhart said. “I think this economy has more strength and better legs, but at the same time one has to be a little bit cautious.”

A third round of asset purchases, or quantitative easing, might be appropriate if the U.S. economy faltered or concern mounted that prices would fall, Lockhart said. Those conditions don’t exist now, he said.

Accommodative Policy

Lockhart said the rise in long-term Treasury yields raises a concern that it could effectively be “a form of tightening” at the time the Fed wants accommodative policy. If the Fed became more concerned about rising yields, a “sterilized” quantitative easing, asset purchases designed to minimize inflation risk, or additional Operation Twist, purchase of long- term bonds with sale of short-term bonds, would be “a policy option,” he said.

“I am not concerned about a double dip recession at least organically,” Lockhart said. “We have an economy growing at a moderate pace.” Still, the European debt crisis and oil prices are risks to the pace of recovery, he said.

Orders to U.S. factories climbed 1.3% in February, the third increase in the past four months, boosted by demand for business equipment, Commerce Department figures showed today. Gains in manufacturing, rising consumer confidence and an improving job market have helped to boost the economic outlook this year.

Treasury Yields

The yield on the 10-year U.S. Treasury note has risen to 2.17% from 1.80% on Jan. 31 in response to reports of an accelerating economy and improving labor market. About 1.2 million jobs were created in the past six months, the most since the same period ended May 2006, Labor Department figures show. The unemployment rate held in February at a three-year-low of 8.3%.

Lockhart said the Fed’s pledge to keep rates low through late 2014 “is very much dependent on the outlook” though currently “aligns with the outlook I see.”

Fed officials have been split on the need for more easing. Additional stimulus may not be warranted with the economy strengthening, St. Louis Fed President James Bullard said March 23 and Richmond Fed President Jeffrey Lacker said March 30.

While economic reports have improved, it is “far too soon to conclude that we are out of the woods” and “nothing has been decided” on more bond purchases, New York Fed President William C. Dudley said March 19. Chicago Fed President Charles Evans said March 22 that “clearly, more accommodation would be appropriate” with unemployment too high.

Bloomberg News

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