Federal Reserve Bank of Atlanta President Dennis Lockhart, who has backed record stimulus, said he wants to see inflation accelerate toward the Fed’s 2% goal before the central bank reduces $85 billion in monthly bond purchases.
“I’d like to see some movement toward the target” before tapering, Lockhart said today in a Bloomberg Radio interview with Kathleen Hays. Inflation is “stable but too low” and a move up would “give me some confidence we are not dealing with some downside scenario that might develop,” said Lockhart, who doesn’t vote on policy this year.
The Federal Open Market Committee at a March 18-19 meeting will probably dial down its bond buying to $70 billion, according to the median of 32 economist estimates in a Bloomberg News survey Nov. 8. Their forecast followed a government report that employers last month increased payrolls by 204,000 workers, more than expected.
An assessment of whether to reduce bond purchases should “focus mostly on employment and inflation, both of which are pretty far from the mandate-consistent levels we are seeking,” Lockhart said in Montgomery, Alabama.
Price gains as measured by the Fed’s preferred gauge, the personal consumption expenditures index, rose 0.9% in September from a year earlier, below policy makers’ 2% target.
Policy makers on Oct. 30 decided not to pare bond purchases aimed at stoking growth and combating 7.3% unemployment, saying they need more evidence of sustained gains in the economy.
The central bank wants economic growth to speed up to 3% or more, a pace faster than its long-term trend, Lockhart said. He called in the speech for “continued strong stimulus,” predicting the economy next year will grow from 2.5% to 3%.
“To achieve a faster pace of growth, it’s my opinion that we’ll need to see” greater consumer spending and a decline in “fiscal drag,” he said at a conference hosted by Auburn University at Montgomery.
Reducing bond purchases “ought to be on the table at upcoming meetings” by the FOMC, including Dec. 17-18, Lockhart said to reporters after his speech.
While inflation will be an important consideration, a decision to taper won’t be based on “a single development,” he said, adding that the labor market has made “significant progress” since the central bank began its third round of asset purchases more than a year ago.
The Fed should make clear to investors that it will sustain stimulus even as it reduces bond buying, Lockhart said. That may mean changing its communication of “forward guidance” on interest rates at the same meeting, he said.
“I would be supportive of consideration of that,” he said. “We might enhance the forward guidance to convince the public and the market that the environment is not going to change much” after a reduction in bond buying.
U.S. Treasury 10-year yields reached the highest level in eight weeks amid signs the economy may be gaining momentum, climbing three basis points, or 0.03 percentage point, to 2.77% at 3:23 p.m. in New York from the close on Nov. 8. The Standard & Poor’s 500 Index fell 0.2% to 1,767.52.
The FOMC began its third round of quantitative easing in September 2012 with monthly purchases of $40 billion in mortgage-backed securities, adding $45 billion in Treasury purchases in December.
A former Georgetown University professor, Lockhart has led the Atlanta Fed since 2007. His district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.