Regional Federal Reserve bank presidents have been always been a window into central bank policy. Judging from remarks over the past several days, tomorrow’s Fed minutes will offer little variation from the past theme of Fed support for the economy with $85 billion a month in purchases of Treasury and mortgage backed bonds. If there is any change in their assessments evident in these recent remarks it is perhaps a heightened anticipation of better economic conditions in the months ahead.
St. Louis Federal Reserve Bank President James Bullard stated today that the central bank should maintain its quantitative easing policy because it is the best option available. The central bank should “continue with the present quantitative easing program, adjusting the rate of purchases appropriately in view of incoming data on both real economic performance and inflation,” said Mr. Bullard.
William Dudley, President of the New York Fed, and an ally of Fed Chairman Bernanke on the FOMC, took a slightly different tone in recent comments saying that he hadn't decided whether the next move should be to increase or decrease bond purchases. He said he was open to slowing the pace of bond buying but warned the central bank may also have to increase its purchases if economic growth falters. “At some point, I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market outlook,” Mr. Dudley said. When that occurs “it will be appropriate to reduce the pace” of the bond buying.
Charles Evans, Chicago Fed President said yesterday that with an improved economy he would be in favor of slowing asset purchases if he had confidence that job growth would continue. "We continue to face powerful headwinds in the fiscal situation and the global economy. The economy seems to be performing pretty well right now," with the labor market, retail spending and housing all higher.
Last week, John Williams’s head of the San Francisco Fed said that the Fed could end its bond purchases by the end of the year provided the labor market continued to grow stronger.
As with the others Williams is not convinced that the recent pickup in the economy is the "substantial improvement" the Fed is seeking but he does have growing confidence the positive movement will continue. "There's no question that we're not getting where we want to get as fast as we like," he said, but there's little doubt that the economy is on the mend.
Chief Market Strategist
Credit Easing Policy Tools
Source: Cleveland Federal Reserve