Top Federal Reserve officials on Thursday showed little urgency about softening the central bank's commitment to hold rates low for a long time, suggesting the Fed will repeat the pledge when it meets late this month.
The Fed has held benchmark borrowing costs near zero to help the economy recover from the worst downturn in decades. It has promised to hold rates exceptionally low for an extended period to encourage borrowing.
However, as the economy shows signs of recovery, notably the addition of 162,000 jobs in March, financial markets are watching for any evidence that policy-makers are ready to soften their commitment to an extended period of low rates. Such a switch would be seen as a precursor to tightening financial conditions, though how soon is also a matter of speculation.
Fed officials who spoke on Thursday appeared to agree with Fed Chairman Ben Bernanke, who told Congress earlier this week that the central bank expects very low rates will be needed for an extended period, but that if conditions improve or inflation rises, the Fed would respond.
At some point in the future, we're going to need to begin to adjust the language, to begin to see changes in the substance of the policy, Atlanta Fed Bank President Dennis Lockhart told reporters after addressing a business group in Pensacola, Florida.
The substance of the language, I continue to support, he said, adding he was not calling for any immediate changes to it. Lockhart is not a voter on the Fed's policy-setting Federal Open Market Committee this year.
The Federal Reserve holds its next policy meeting on April 27-28.
IT ALL DEPENDS UPON THE ECONOMY
Another senior Fed official, Richmond Fed Bank chief Jeffrey Lacker, said earlier this week that recent signs of recovery have led him to think that a muting of the extended period language should come sooner rather than later.
However, Lacker said on Thursday he did not see any pressing need to remove the phrase from the Fed statement yet.
I'm comfortable with interest rates where they are now, Lacker, also a non-voter, told reporters at a Fed symposium on credit markets in Charlotte, North Carolina.
The Richmond Fed president said that once the Fed drops the extended period phrase, it would not necessarily mean that it will raise interest rates shortly thereafter.
There's no set period of meetings or months before the Fed would raise borrowing costs, he said.
St. Louis Fed Bank President James Bullard said the extended period promise should reflect more conditionality on the state of the economy.
Bullard, an FOMC voter this year, said the pledge should not be linked to a specific period.
Everything depends on economic performance, and we'd like to be able to convey that, Bullard told reporters after a speech in New York.
Janet Yellen, president of the San Francisco Fed, struck a somewhat bullish tone on the economy, saying that her own thinking has turned the corner and she is now confident the economy is on the right track.
Yellen also said she expected consumer and business spending to sustain economic recovery once the impact of policy stimulus fades.
Still, subdued inflation and a terribly high jobless rate mean the Fed's pledge to keep interest rates at near-zero for an extended period is appropriate, she told a meeting of Financial Executives International in San Francisco.
At some point though, as the economy continues to expand, the Fed will have to pull back on some of this extraordinary stimulus, she said.
Yellen is not an FOMC voting member this year, although she is a lead candidate to replace Donald Kohn as Fed vice chairman when he retires in June.
A fifth Fed president who spoke on Thursday, Dallas Fed Bank President Richard Fisher, assured at a Johns Hopkins University conference that the Fed would not print money to fund U.S. budget deficits, but he did not directly address the outlook for monetary policy.
Fisher is currently a non-voting member of the FOMC.
(With additional reporting by Joe Rauch in Charlotte, North Carolina; Kristina Cooke and Emily Flitter in New York, Pedro da Costa in Pensacola, Florida, and Ann Saphir in San Francisco; Editing by Jan Paschal and Tomasz Janowski)