DAYTON, OHIO — Atlanta Federal Reserve President Dennis Lockhart told reporters Thursday Fed purchases of mortgage-backed securities are having a "discernible" impact on the improving housing markets, something he continues to support.

Lockhart said QE3, which includes purchases of Treasuries and MBS, has a "net positive effect on how the economy is evolving."

Chicago Federal Reserve Bank President Charles Evans, appearing with Evans on a panel at a Research Internships in Science and Engineering conference, said he would like to see monthly nonfarm payroll increases of 200,000 or more for at least six months before tapering off asset purchases. Evans holds a voting position on the policy-setting Federal Open Market Committee this year.

Fed Chairman Ben Bernanke greeted the participants with recorded remarks which included no references to monetary policy.

Fiscal tightening remains a headwind for U.S. economic growth, Evans said, and the global environment remains a concern.

An employment rate of 6.5% or below remains a "threshold" of improvement for Fed policymakers, Evans said, but could be a milepost, depending on other economic conditions.

Asked about the Bank of Japan's announced of asset purchases, Lockhart said he would not comment on BOJ policy, but added that the BOJ's move was one more element of aggressive accommodation by global central banks.

Lockhart said Fed communication is at a premium in the current environment. Fed officials need to prepare the markets for any shifts in monetary policy in order to prevent financial shocks, he said.

The two Federal Reserve Bank presidents took reporters' questions after speaking at a student investment conference at the University of Dayton, in Dayton, Ohio.

The U.S. growth rate currently is more "modest" — lower than many would have expected, Lockhart told the students, but inflation is well contained and below the Fed's target of 2%. Employment remains a key issue, he added.

"The ups and downs of the stock market do not change Fed policy," Lockhart said. In answer to a question from a student audience member, he added that the investors' search for yield is driving high-yield prices, and that he did not see a "bubble."

Once "we get growth under way, we will see higher Treasury rates," Evans said. Changes in asset prices are not because monetary policy is so "strong," he said. But "the long-term improvement of the economy" trumps any policy negatives, he added.

Lockhart noted that monetary policy "is not all-powerful," and has limits when addressing the micro economy. At the same time, "I'd like to see some clarity on fiscal policy" from Washington, Lockhart said. "Certainly some risks remain that can scare employers."

Asked about China's relationship with the U.S., Evans said what happens in China continued to have large implications for the U.S., and noted China has a large stake in the U.S. recovery, both as a bondholder and exporter of consumer goods.

"We cannot count on U.S. consumers to be the engine of growth" as they were in the past, Evans said.

Both Federal Reserve Bank presidents cited a monthly increase of 200,000 in non-farm payroll as an indication as a threshold for growth. Reaching that rate should encourage "adequate" employment improvement, Lockhart said. If employment does improve, Lockhart added, he expects the Fed could taper off its asset purchases later this year.

Forecasters are looking for a 190,000-job increase in March U.S. non-farm payrolls, set for release Friday.

Evans said he expected growth momentum to increase, adding that he was "hopeful" for a 2.5% rate by year-end. But he added that the federal funds rate should stay at zero until the U.S. unemployment rate falls below 6.5%.

"We've had a good run in employment over the last four months," Evans said, but later added that spring sometimes presents difficult seasonal effects.

Asset purchases are a "supplement" to monetary policy, Lockhart said.

The Fed's balance sheet now has some $3 trillion in Treasuries, Evans noted. "I'd like to hope we can curtail these asset purchases as soon as possible," he said. "We don't want to see a larger asset balance sheet than required."

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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