UPDATE 1-Fed's Lockhart says inflation will be "easily recognizable"

By Alister Bull

April 13 (Reuters) - U.S. inflation is under control and is going to stay that way because the Federal Reserve will "easily" spot the conditions that could erode price stability, and has the tools to tighten policy when needed, a top U.S. central banker said on Saturday.

Atlanta Federal Reserve President Dennis Lockhart acknowledged that inflation expectations might be fanned by rapid credit growth as the economy picked up steam, as a result of the aggressive actions taken by the central bank.

"That chemistry is not at work today," he told a panel on fiscal policy at The University of Iowa School of Law, in Iowa City. "I'm confident those improving conditions will be easily recognizable and the committee has a variety of tools to counter inflationary pressures with tightening measures."

The Fed has held interest rates near zero since late 2008 and tripled the size of its balance sheet to around $3 trillion through massive bond purchases aimed at holding down longer-term borrowing costs to boost investment and hiring.

Lockhart, who is viewed as a policy centrist and therefore a good gauge of the consensus among Fed leaders, is not a voting member this year of the central bank's policy-setting Federal Open Market Committee (FOMC).

He shared the Iowa panel with Allan Meltzer, a respected economist and historian of the Federal Reserve, who has been an outspoken critic of its dramatic actions to put the U.S. economy on a sounder footing. Lockhart stood his ground.

"We are navigating in uncharted waters...but I am convinced we are weighing the benefits of the policy against the possible longer-term costs in a balanced way," he said.

Some critics say bond buying by the Fed has funded explosive deficit spending by President Barack Obama. But Lockhart rejected that accusation.

"A low cost of borrowing for the federal government is a by-product of a policy of nursing the economy back to full health and with success, the ultra-low interest rate conditions are likely to give way to higher rates, whether or not the government is borrowing," he said.

He also noted international investors continued to view U.S. financial markets as a "safe haven", in an indication that they did not regard the Fed's actions as undermining the long-term outlook for the nation's prospects.

"The dollar is in fact strengthening and investors do not seem to be overly concerned that the FOMC's policies will stoke inflation over the longer term," he said.

View the original article here

WRAPUP 1-Fed doves play down threat of US inflation

By Jonathan Spicer and Alister Bull

April 13 | Sat Apr 13, 2013 5:29pm EDT

April 13 (Reuters) - Federal Reserve policymakers went out of their way on Saturday to play down the risk that aggressive measures to bolster the U.S. economy would lead to inflation in the future, in a clear signal of support for its ongoing actions to spur growth.

The U.S. central bank last month maintained a controversial program of buying $85 billion of bonds a month, while pledging to keep interest rates near zero until unemployment hits at least 6.5 percent, so long as inflation stays under 2.5 percent.

Two of the central bank's most dovish officials - Chicago Federal Reserve boss Charles Evans and Minneapolis Fed President Narayana Kocherlakota - pushed back against recent signals from Fed hawks who want to taper those bond purchases.

"Without signs of actual inflation, many inflation-risk discussions ultimately raise this specter of ... unlocking the long-ago-vanquished inflation demons from the dungeon," said Evans, a voting member of the Fed's policy committee this year.

"We have to monitor it, we have to be mindful, but I don't think we should obsess over it," he told an event in Boston.

Minutes of the Fed's March 19-20 meeting, released on Wednesday, indicated that "many" of its 19 policymakers thought the pace of bond buying could be slowed in coming months, provided the nation's labor market continues to improve.

However, data released since that meeting showed disappointingly small U.S. job growth in March and an unemployment rate of 7.6 percent, which was actually down from 7.7 percent the month before but only because people gave up looking for work.

The Fed's preferred inflation measure is around 1.3 percent, well below its 2 percent target.

Kocherlakota, like-minded and speaking alongside Evans, argued that a balanced policy approach would allow inflation to deviate somewhat from its official 2 percent inflation goal, in order to lower U.S. unemployment.

"A balanced approach would allow for deviations of inflation from its longer run goal in order to facilitate a faster decline in unemployment back to its desired level," Kocherlakota said.

Kocherlakota is alone in advocating for even more accommodation from the Fed in the form of lowering to 5.5 percent, from 6.5 percent currently, the "threshold" at which the central bank will consider raising rates from near zero.

Meanwhile, a third official, Atlanta Fed President Dennis Lockhart, also defended the bond buying and said the "chemistry" necessary to spark inflation - stronger credit growth and a much more buoyant economy - was simply not in place.

"I'm confident those improving conditions will be easily recognizable and the committee has a variety of tools to counter inflationary pressures with tightening measures," he told an event at the University of Iowa on fiscal policy.

Lockhart, who is not a voter this year, is viewed as a policy centrist and therefore a good guide to the consensus among Fed leaders.

"We are navigating in uncharted waters...but I am convinced we are weighing the benefits of the policy against the possible longer term costs in a balanced way," he told the audience.

View the original article here

UPDATE 2-Focus on US unemployment as inflation in check, Fed doves say

By Jonathan Spicer

BOSTON, April 13 (Reuters) - Two dovish Federal Reserve policymakers on Saturday highlighted the U.S. central bank's good record keeping inflation close to target, arguing the Fed needs to stay focused on accommodative policies despite some outsized fears over future inflation.

Chicago Fed President Charles Evans and Narayana Kocherlakota of the Minneapolis Fed, speaking at a forum on how best to heal the troubled U.S. labor market, in effect sought to push back against more hawkish-minded officials who want to wind down the Fed's extraordinarily easy monetary policies.

Evans said inflation pressures look low now, and the Fed's easy policies have helped slowly move the unemployment rate down toward 5.5 percent, which he called a sustainable level.

U.S. joblessness stood at 7.6 percent last month, down from 10 percent in 2009. The Fed's preferred inflation measure is around 1.3 percent, below its 2 percent target.

"Without signs of actual inflation, many inflation-risk discussions ultimately raise this specter of ... unlocking the long-ago-vanquished inflation demons from the dungeon," said Evans, a voting member of the Fed's policy committee this year.

"We have to monitor it, we have to be mindful, but I don't think we should obsess over it," he said, adding the Fed's inflation performance has been "really good."

"Chairman Bernanke will go down as one of the best Fed chairs for many many reasons, but also because the inflation performance has been good."

NOT HIGHER BUT LOWER POLICY THRESHOLDS

The Fed is buying $85 billion in Treasury and mortgage securities per month and has promised to keep interest rates near zero for a long while more to support the stop-start U.S. economic recovery and get Americans back to work.

While policy doves currently hold sway over Chairman Ben Bernanke and the majority of Fed policymakers, minutes from last month's policy meeting suggest the quantitative easing program could draw to a close by year end, earlier than some economists had expected.

Like-minded and speaking alongside Evans, Kocherlakota argued that a balanced policy approach would allow inflation to deviate somewhat from its 2-percent inflation goal in order to lower U.S. unemployment.

"A balanced approach would allow for deviations of inflation from its longer run goal in order to facilitate a faster decline in unemployment back to its desired level," Kocherlakota said.

Kocherlakota is alone in advocating for even more accommodation from the Fed in the form of lowering to 5.5 percent, from 6.5 percent currently, the "threshold" at which the central bank will consider raising rates from near zero.

On Saturday, he told reporters that while it would be ok to lower the threshold, it would be "very confusing for the public" if the Fed were to raise that threshold.

"I would strongly advise against doing this," he said, because the Fed has said it will keep rates low until that point. But, he added, it hasn't said "anything about what could do after that, which allows for the possibility that we could always lower the threshold."

View the original article here

Focus on unemployment as inflation in check, Fed doves say

Chicago Federal Reserve Bank President Charles Evans speaks during the Sasin Bangkok Forum July 9, 2012.

Credit: Reuters/Sukree Sukplang

By Jonathan Spicer

BOSTON | Sat Apr 13, 2013 4:21pm EDT

BOSTON (Reuters) - Two dovish Federal Reserve policymakers on Saturday highlighted the U.S. central bank's good record keeping inflation close to target, arguing the Fed needs to stay focused on accommodative policies despite some outsized fears over future inflation.

Chicago Fed President Charles Evans and Narayana Kocherlakota of the Minneapolis Fed, speaking at a forum on how best to heal the troubled U.S. labor market, in effect sought to push back against more hawkish-minded officials who want to wind down the Fed's extraordinarily easy monetary policies.

Evans said inflation pressures look low now, and the Fed's easy policies have helped slowly move the unemployment rate down toward 5.5 percent, which he called a sustainable level.

U.S. joblessness stood at 7.6 percent last month, down from 10 percent in 2009. The Fed's preferred inflation measure is around 1.3 percent, below its 2 percent target.

"Without signs of actual inflation, many inflation-risk discussions ultimately raise this specter of ... unlocking the long-ago-vanquished inflation demons from the dungeon," said Evans, a voting member of the Fed's policy committee this year.

"We have to monitor it, we have to be mindful, but I don't think we should obsess over it," he said, adding the Fed's inflation performance has been "really good."

"Chairman Bernanke will go down as one of the best Fed chairs for many many reasons, but also because the inflation performance has been good."

NOT HIGHER BUT LOWER POLICY THRESHOLDS

The Fed is buying $85 billion in Treasury and mortgage securities per month and has promised to keep interest rates near zero for a long while more to support the stop-start U.S. economic recovery and get Americans back to work.

While policy doves currently hold sway over Chairman Ben Bernanke and the majority of Fed policymakers, minutes from last month's policy meeting suggest the quantitative easing program could draw to a close by year end, earlier than some economists had expected.

Like-minded and speaking alongside Evans, Kocherlakota argued that a balanced policy approach would allow inflation to deviate somewhat from its 2-percent inflation goal in order to lower U.S. unemployment.

"A balanced approach would allow for deviations of inflation from its longer run goal in order to facilitate a faster decline in unemployment back to its desired level," Kocherlakota said.

Kocherlakota is alone in advocating for even more accommodation from the Fed in the form of lowering to 5.5 percent, from 6.5 percent currently, the "threshold" at which the central bank will consider raising rates from near zero.

On Saturday, he told reporters that while it would be ok to lower the threshold, it would be "very confusing for the public" if the Fed were to raise that threshold.

"I would strongly advise against doing this," he said, because the Fed has said it will keep rates low until that point. But, he added, it hasn't said "anything about what could do after that, which allows for the possibility that we could always lower the threshold."

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

View the original article here

Fed's Lockhart says inflation will be "easily recognizable"

By Alister Bull

Sat Apr 13, 2013 4:44pm EDT

n">(Reuters) - U.S. inflation is under control and is going to stay that way because the Federal Reserve will "easily" spot the conditions that could erode price stability, and has the tools to tighten policy when needed, a top U.S. central banker said on Saturday.

Atlanta Federal Reserve President Dennis Lockhart acknowledged that inflation expectations might be fanned by rapid credit growth as the economy picked up steam, as a result of the aggressive actions taken by the central bank.

"That chemistry is not at work today," he told a panel on fiscal policy at The University of Iowa School of Law, in Iowa City. "I'm confident those improving conditions will be easily recognizable and the committee has a variety of tools to counter inflationary pressures with tightening measures."

The Fed has held interest rates near zero since late 2008 and tripled the size of its balance sheet to around $3 trillion through massive bond purchases aimed at holding down longer-term borrowing costs to boost investment and hiring.

Lockhart, who is viewed as a policy centrist and therefore a good gauge of the consensus among Fed leaders, is not a voting member this year of the central bank's policy-setting Federal Open Market Committee (FOMC).

He shared the Iowa panel with Allan Meltzer, a respected economist and historian of the Federal Reserve, who has been an outspoken critic of its dramatic actions to put the U.S. economy on a sounder footing. Lockhart stood his ground.

"We are navigating in uncharted waters...but I am convinced we are weighing the benefits of the policy against the possible longer-term costs in a balanced way," he said.

Some critics say bond buying by the Fed has funded explosive deficit spending by President Barack Obama. But Lockhart rejected that accusation.

"A low cost of borrowing for the federal government is a by-product of a policy of nursing the economy back to full health and with success, the ultra-low interest rate conditions are likely to give way to higher rates, whether or not the government is borrowing," he said.

He also noted international investors continued to view U.S. financial markets as a "safe haven", in an indication that they did not regard the Fed's actions as undermining the long-term outlook for the nation's prospects.

"The dollar is in fact strengthening and investors do not seem to be overly concerned that the FOMC's policies will stoke inflation over the longer term," he said.

(Reporting By Alister Bull; Editing by Chizu Nomiyama)

View the original article here

Fed doves play down threat of U.S. inflation

By Jonathan Spicer and Alister Bull

Sat Apr 13, 2013 6:02pm EDT

n">(Reuters) - Federal Reserve policymakers went out of their way on Saturday to play down the risk that aggressive measures to bolster the U.S. economy would lead to inflation in the future, in a clear signal of support for its ongoing actions to spur growth.

The U.S. central bank last month maintained a controversial program of buying $85 billion of bonds a month, while pledging to keep interest rates near zero until unemployment hits at least 6.5 percent, so long as inflation stays under 2.5 percent.

Two of the central bank's most dovish officials - Chicago Federal Reserve boss Charles Evans and Minneapolis Fed President Narayana Kocherlakota - pushed back against recent signals from Fed hawks who want to taper those bond purchases.

"Without signs of actual inflation, many inflation-risk discussions ultimately raise this specter of ... unlocking the long-ago-vanquished inflation demons from the dungeon," said Evans, a voting member of the Fed's policy committee this year.

"We have to monitor it, we have to be mindful, but I don't think we should obsess over it," he told an event in Boston.

Minutes of the Fed's March 19-20 meeting, released on Wednesday, indicated that "many" of its 19 policymakers thought the pace of bond buying could be slowed in coming months, provided the nation's labor market continues to improve.

However, data released since that meeting showed disappointingly small U.S. job growth in March and an unemployment rate of 7.6 percent, which was actually down from 7.7 percent the month before but only because people gave up looking for work.

The Fed's preferred inflation measure is around 1.3 percent, well below its 2 percent target.

Kocherlakota, like-minded and speaking alongside Evans, argued that a balanced policy approach would allow inflation to deviate somewhat from its official 2 percent inflation goal, in order to lower U.S. unemployment.

"A balanced approach would allow for deviations of inflation from its longer run goal in order to facilitate a faster decline in unemployment back to its desired level," Kocherlakota said.

Kocherlakota is alone in advocating for even more accommodation from the Fed in the form of lowering to 5.5 percent, from 6.5 percent currently, the "threshold" at which the central bank will consider raising rates from near zero.

Meanwhile, a third official, Atlanta Fed President Dennis Lockhart, also defended the bond buying and said the "chemistry" necessary to spark inflation - stronger credit growth and a much more buoyant economy - was simply not in place.

"I'm confident those improving conditions will be easily recognizable and the committee has a variety of tools to counter inflationary pressures with tightening measures," he told an event at the University of Iowa on fiscal policy.

Lockhart, who is not a voter this year, is viewed as a policy centrist and therefore a good guide to the consensus among Fed leaders.

"We are navigating in uncharted waters...but I am convinced we are weighing the benefits of the policy against the possible longer term costs in a balanced way," he told the audience.

(Editing by Chizu Nomiyama)

View the original article here

Focus on US unemployment because inflation is in check, Fed doves say

BOSTON, April 13 | Sat Apr 13, 2013 1:14pm EDT

BOSTON, April 13 (Reuters) - A dovish Federal Reserve policymaker on Saturday highlighted the U.S. central bank's good record on maintaining average inflation close to its 2-percent target, arguing the Fed needs to stay focused on accommodative policies despite some outsized fears over future inflation.

Chicago Fed President Charles Evans, in a speech, said inflation pressures look low now, and the Fed's easy policies have helped slowly move the U.S. unemployment rate toward 5.5 percent, which he called a sustainable level.

Speaking alongside Evans, Minneapolis Fed President Narayana Kocherlakota, a fellow dove, argued that a balanced policy approach would allow inflation to deviate somewhat from its 2-percent goal in order to lower U.S. unemployment.

View the original article here