Federal Reserve Bank of Atlanta President Dennis Lockhart said Fed officials are committed to record stimulus even as divergent views on when to start paring back bond purchases create a “mixed message” to investors.
“To the extent that the markets are seeing mixed messages, it simply reflects the debate that’s going on among the colleagues on the Federal Open Market Committee,” Lockhart said today in a Bloomberg Television interview in New York with Michael McKee. “The bigger picture is that any adjustment is not a major policy shift.”
The yield on the 10-year Treasury note has surged in the past month as some Fed officials have said the Fed could slow bond purchases. Chairman Ben S. Bernanke, responding to a question, said May 22 that the Fed could consider reducing the amount of Treasuries and mortgage debt it buys within “the next few meetings” if officials see signs of sustained improvement in the labor market.
The 10-year note yield rose to 2.13% at 3:06 p.m. in New York trading from 1.63% on May 2.
Lockhart, 66, said recent data, including a monthly decline in manufacturing, reported today by the Institute for Supply Management, suggest the economy isn’t strong enough to justify a reduction in bond buying. The institute’s factory index fell in May to 49 from the prior month’s 50.7, with 50 the dividing line between growth and contraction. It was the fastest decline in four years.
“The data we’re receiving are still very mixed,” said Lockhart, who doesn’t vote on policy this year. “The ISM report this morning is a good example. I’m not getting a clear picture of an economy that really is tracking with considerable momentum.”
“I’d tend to be a little more cautious, and say maybe August, September or later in the year” would be time to consider slowing purchases, he said. “The issue can be on the table in any of those meetings.”
Lockhart also said a departure of Bernanke as Fed chairman at the end of his second term in January isn’t a “foregone conclusion.”
“The important point is that speculation about Chairman Bernanke’s retirement is not having any effect on our ability to formulate policy,” the Atlanta Fed chief said. It’s “not really in any way feeding into the policy deliberations.”
The policy-setting FOMC said May 1 that it will keep buying $85 billion a month in bonds to bolster growth and cut unemployment. The central bank also pledged to keep interest rates near zero as long as joblessness is above 6.5% and inflation is no more than 2.5%.
A “modest adjustment downward, in our purchase program” is possible as “early as this summer,” San Francisco Fed President John Williams said today. He doesn’t hold a policy vote this year.
Inflation is not an immediate concern, Lockhart said. “We’re just in a spell of very soft inflation numbers.”
“Inflation expectations appear to be well anchored and measures of inflation expectations are really not indicating a move toward deflationary territory,” he said. Still, “I don’t think we can dismiss downside risk related to inflation.”
Inflation has fallen below the central bank’s 2% target. Price gains were 0.7% from a year earlier in April, according to the Fed’s preferred price gauge, which is tied to consumer spending patterns.
In a May 22 interview, Williams said any move to reduce the pace of bond buying could be followed by an increase should the economy weaken again.
“Even if we do adjust downward our purchases, it doesn’t mean we’re now in some autopilot of moving in the same direction,” Williams, 50, said. “You could even imagine a scenario where we adjust it downward based on good data and then adjust it back” if the economy weakened.
A former Georgetown University professor, Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.