Atlanta Federal Reserve Bank President Dennis Lockhart Thursday said the central bank's bond-buying quantitative easing program is likely to persist after mid-year.
"My own sense of this is that it's just probably going to be a struggle to see by mid-year a clear indication that the outlook for the labor markets are in a sort of new phase and it's quite optimistic," Lockhart said in comments at the Bloomberg Global Markets Summit.
"I would tend to believe that this bond purchasing will need to continue longer into the year."
The Fed's policy-making Open Market Committee in December announced it is focusing on thresholds of a 6.5% unemployment rate and a 2.5% inflation forecast that, if achieved, would spark consideration of raising short-term interest rates, and, by implication, of unwinding its QE program. In doing so, it abandoned its previous date-driven guidance method that had rates remaining exceptionally low through mid-2015.
But Lockhart later clarified to reporters that the evolving guidance methods were not contradictory.
"A number of us have emphasized that the mid-2015 date is fully consistent with the 6.5% threshold," at least for now, he said. "Nothing much has changed when you cut through the way we communicate."
With the new guidance, he continued, "the public and the markets have the responsibility to do their own calculations as to what the date would be by observing ... the economy."
Lockhart, who next votes on monetary policy in 2015, said that, despite the Fed's growing balance sheet and monetary policy's dramatic foray into "uncharted territory," its unwinding process won't be precipitous.
"I'm very comfortable that, when the time comes, that exit can be done, can be carried out in orderly way," he said. But he warned that "the bigger the balance sheet," the greater the potential for unanticipated problems.
The QE program's lifespan, he said, will depend on labor market conditions as well as the "efficacy" and long-term consequences of such easing.
"I take more of a dashboard approach," in which the unemployment rate is the "lead indicator" but is "balanced" with the other two criteria, Lockhart said.
Asked if the Fed would opt for tapering its conclusion of bond buys or abruptly ending the program, he said, "I see various ways that the LSAP (large-scale asset purchase) programs could stop, and tapering is one of the options."
The Fed will have to asses economic conditions to determine "whether the best way to begin to slow that process is to reduce either the mortgage-backed side or the Treasury side, or whether it simply makes sense to announce some kind of an end date," Lockhart said.
Reiterating comments he made on Monday, he said this latest, third, round of QE is "open-ended," in that the Fed has not "set a date or an absolute amount," but that does not imply that it is "boundless, that it's QE infinity."
The Atlanta Fed chief also said there appears to be "no immediate risk" of inflation, and that "strong acceleration" this year from a roughly 2% growth pace is unlikely. Slow growth, however, does not imply the U.S. will suffer through a "Japan-style lost decade," he added.
On China, he said current forecasts for 7.5% growth this year suggest the Asian powerhouse has "achieved something of a soft landing, that in a way the trough has been achieved."
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