(Bloomberg News) The odds of more Federal Reserve stimulus diminished yesterday as four central bankers said it probably won't be needed and an unexpected acceleration in U.S. manufacturing provided fresh evidence of economic strength.
John Williams, president of the San Francisco Fed, joined his counterparts from Richmond, Philadelphia and Atlanta in casting doubt on the need for additional purchases of bonds to push down longer-term interest rates. Three of them are voting members of the rate-setting Federal Open Market Committee.
Thresholds for further action "would be if we see economic growth slow to the point where we're not seeing further progress in bringing the unemployment rate down," Williams said, or if inflation dropped "significantly" below the Fed's 2 percent goal. Those aren't "the circumstances I currently expect," Williams said at a conference in Beverly Hills, California.
The FOMC left policy unchanged after its April 24-25 meeting, and Chairman Ben S. Bernanke signaled that further easing is unlikely unless the economy unexpectedly deteriorates. Bernanke said it would be "reckless" to pursue policies that would drive up inflation when it's already near the Fed's target, while noting he's "prepared to do more" should conditions worsen.
Richmond President Jeffrey Lacker, who has dissented three times this year against the panel's statement that borrowing costs are likely to stay "exceptionally low" at least through late 2014, repeated his objections yesterday.
'Not Gangbusters'
"For us to provide more monetary stimulus at this point would likely raise inflation risks and not likely do much for growth," Lacker said in an interview at the Bloomberg Washington Summit hosted by Bloomberg Link. While "it's not a gangbusters recovery by historical standards," growth will accelerate, he said.
Lacker said the central bank needs to be ready to raise the benchmark federal funds rate even if joblessness exceeds 7 percent, and that an interest-rate increase is likely in mid-2013.
Unemployment "could well be above 7 percent, and I think we have to prepare for that," Lacker said. "I think it's a misconception to think we have to get unemployment all the way down to five or some number like that before we raise rates."
Williams, who votes on policy this year, said at the 2012 Milken Institute Global Conference that he expects the economy to grow at a "moderate" pace of 2.5 percent and "pick up somewhat" during the next few years. In March, Williams said the Fed "may need to do more" and had to "keep applying monetary policy stimulus vigorously."
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