Lockhart says QE taper possible at next three meetings

August 13, 2013 11:00 AM


Federal Reserve Bank of Atlanta President Dennis Lockhart, who has backed the Fed’s $85 billion in monthly bond purchases, said policy makers may start to slow buying at any of their next few meetings amid “uneven performance” by the economy.

“The first adjustments to asset purchases, when they occur, should be the beginning of a process with steps that will be determined as later information arrives and certainty about the direction of the economy accumulates,” Lockhart, who doesn’t vote on monetary policy this year, said today in a speech in Atlanta. “A decision to proceed -- whether it is in September, October, or December -- ought to be thought of as a cautious first step.”

Fed regional bank officials last week indicated greater willingness to reduce bond buying. Chicago Fed President Charles Evans, who votes on policy this year, said he would not rule out a move at the Sept. 17-18 meeting, while Cleveland Fed President Sandra Pianalto said economic progress makes her “prepared to scale back the monthly pace of asset purchases.” She doesn’t vote on policy in 2013.

Lockhart told reporters after his speech that monthly data on employment would be the most important factor he’ll weigh in considering whether to favor a slowing of purchases next month.

“I wouldn’t rule out September at all,” he said. “I certainly want to see whatever little indication we get in the data between now and September.”

‘Very Weak’

“Very weak employment numbers would be one” factor that could avert tapering next month, along with “a sudden pickup in disinflation indicators,” he said to reporters.

Treasury yields surged earlier this year as Fed officials discussed the possibility of slowing purchases, suggesting that “much of that response has already been priced in” to bond prices from an initial tapering, Lockhart said.

The Standard & Poor’s 500 Index increased 0.4% to 1,695.48 at 3:13 p.m. in New York, while the yield on 10-year Treasuries rose 10 basis points, or 0.1 percentage point, to 2.72%.

Policy makers have pledged to press on with asset purchases until the labor market has improved “substantially.” The unprecedented bond buying has pumped up the central bank’s balance sheet to $3.59 trillion.

“I will need to get comfortable that the employment progress we’ve enjoyed is not stalling and that disinflation pressures are not building,” Lockhart said to the Kiwanis Club of Atlanta.

‘Full Phase-Out’

“I don’t expect to have enough data to be sure of my outlook” in September, he said. “For that reason, I don’t think a decision that commits the Fed to a full phase-out of asset purchases and lays out a precise, beginning-to-end path for doing so would be advisable.”

Payrolls rose by 162,000 workers in July, the fewest in four months, following a revised 188,000 increase in June, data showed Aug. 2. The jobless rate dropped to a more than four-year low of 7.4% from 7.6%.

Lockhart said he expects a pickup in U.S. economic growth in the second half of the year and a further acceleration next year.

“I expect consumer activity to strengthen, I expect business investment to accelerate somewhat, and I expect the rebound we have seen in the housing sector to continue,” he said. “I expect the recent improvement in exports to last. And I expect to see an easing of the public-sector spending drag at the federal, state, and local levels.”

‘Confidence Shock’

Still, another “fiscal confidence shock” is possible in the second half of the year as Congress debates federal spending levels, he said.

Fed Chairman Ben S. Bernanke, at a June press conference, said the Fed may start dialing down its unprecedented bond- buying program this year and end it in mid-2014 if the economy achieves the sustainable growth the Fed has sought since the recession ended in 2009.

The Fed has pledged to keep the main interest rate near zero so long as the unemployment rate remains above 6.5% and the forecast for inflation doesn’t exceed 2.5% over one to two years.

A former Georgetown University professor, Lockhart, 66, has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.


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