U.S. Federal Reserve officials, out on a speaking spree on Thursday, suggested the economy would have to deteriorate for the central bank to consider additional monetary stimulus.
Policymakers did hint at the possibility of further action, with Fed Board Governor Sarah Raskin saying the Fed stands ready to do all it can to support the economic rebound, while New York Fed President William Dudley emphasized the recovery's fragility.
Some economic news has been encouraging and may be suggesting that the pace of the recovery is picking up, Raskin said, citing the drop in the unemployment rate over the past six months and the creation of about one million jobs. However, the national economic recovery clearly has a long way to go.
Late Wednesday the Fed's influential vice chair, Janet Yellen, said the central bank's policy of near-zero interest rates is appropriate given high unemployment and the headwinds facing the economy. She added the central bank has a variety of options were it to engage in further asset purchases, and that the Fed remains quite willing to take whatever actions are necessary to achieve its mandate.
However, that message was not unanimous. While Yellen defended the Fed's guidance that it would likely leave rates near zero until late 2014, Philadelphia Fed President Charles Plosser said the central bank should move away from the approach of suggesting a specific calendar date for the start of rate hikes.
I'd like to get us to move away from that and substitute something that's a little more systematic and coherent about how it depends on the economy, Plosser told reporters after a speech to economists.
BERNANKE UP TO BAT
Investors will be keen to see what Fed Chairman Ben Bernanke has to say on Friday as he gives the latest in a string of recent public pronouncements that included four lectures to college students last month.
The Fed has lowered its official interest rates to near zero and bought bonds to keep market rates anchored at low levels. Raskin said this has helped with business investment spending and car sales have picked up, and the lower value of the U.S. dollar has helped exports. But the pace of recovery is still slow.
In light of the economic hardships that have been endured in Los Angeles and nationwide, the Federal Reserve remains fully committed to doing everything it can to promote maximum employment in the context of stable prices, Raskin said in a speech to Los Angeles business and community leaders.
Still, investors were left with the sense that things would need to get worse for the central bank to act.
We believe it would take a significant weakening in the data before the committee would initiate further asset purchases, said Michael Gapen, economist at Barclays in New York.
Yellen said she expects the economic recovery to continue and to strengthen somewhat over time.
U.S. economic growth has been erratic during this recovery, and the job market has been especially slow to get into gear.
Gross domestic product registered 3 percent in the fourth quarter of 2011, but is expected to have slowed to the low 2 percent range in the first three months of this year.
The unemployment rate has fallen from around 9.1 percent last summer to 8.2 percent in March. But employment growth slowed sharply last month as well, raising fears that the labor market might sputter out yet again.
The economy has made up less than half the jobs lost during the Great Recession, without adjusting for population growth.
Still, Plosser and others at the Fed argue further monetary stimulus would offer little additional boost to employment while raising the risk of inflation and complicating an eventual exit from the low rates policy.
Maximum employment is largely determined by factors that are beyond the control of monetary policy, he said. us
(Additional reporting by Stella Dawson, Walter Brandimarte and David Bailey; Editing by Chizu Nomiyama)