MacroScope

Who said what, when? An unofficial guide to Fed speak on QE3

January 16, 2013

U.S. Federal Reserve policymakers, fresh from a December decision to ramp up asset purchases to help push down borrowing costs, will this year train a sharp eye on jobs.

A “substantial improvement” in the labor market outlook is a prerequisite for ending the bond-buying program, known as QE3 because it is the Fed’s third quantitative easing program since the Great Recession.

Below is a look at top Fed officials’ views on the asset-purchase program, currently at a monthly $85 billion, as well their take on the Fed’s new vow to keep rates low until unemployment falls to at least 6.5 percent, as long as inflation does not threaten to breach 2.5 percent.

- Fed Chairman Ben Bernanke (permanent voter) has suggested he does not see a near-term end to QE3. “I want to be clear that while we’ve made progress, there’s still quite a ways to go before we’ll be satisfied,” he said on Jan. 14.

- Boston Fed President Eric Rosengren (2013 voter) supports buying assets until the unemployment rate falls to about 7.25 percent, a personal threshold he does not expect to breach this year.

- St. Louis Fed President James Bullard (2013 voter) says a drop to 7.1 percent unemployment would put the Fed in a “good position” to pause on buying assets, a level he said the economy could reach by the end of this year. He sees the unemployment rate falling to 6.5 percent by mid-2014, paving the way for the central bank to raise rates.

- Chicago Fed President Charles Evans (2013 voter) wants to see payroll employment increase by 200,000 each month for a number of months, noting the current pace is too slow and erratic to meet that threshold. “That’s going to be on the order of 1 million to 1.5 million jobs over the next six months to a year. That would be indicative that we could stop.” Evans does not expect unemployment to fall to 6.5 percent before mid-2015.

- Kansas City Fed President Esther George (2013 voter), asked during a question-and-answer session following a Jan. 10 speech if she favored halting asset purchases at some stage this year, declined to say what course of action she favored. But she warned against an overly easy policy stance. “Monetary policy, by contributing to financial imbalances and instability, can just as easily aggravate unemployment as heal it,” she said.

- Minneapolis Fed President Narayana Kocherlakota (2014 voter) wants the Fed to promise low rates until the unemployment rate hits 5.5 percent. “I do think that it’s important for the public to know that the Fed is going to stay in an accommodative stance until the economy is much closer to being what one might consider normal,” he said on Jan. 15. “And I think 6.5 percent unemployment, I think that would still be too high to be considered normal.” He is comfortable with the current rate of asset purchases and believes they are working, but does not advocate ramping it up because the Fed is still evaluating the cost and benefits.

- Philadelphia Fed President Charles Plosser (2014 voter) is a critic of current policy. “Efforts to drive real rates more negative or promises to keep rates low for a long time may have frustrated households’ efforts to rebuild their balance sheets without stimulating aggregate demand or consumption.”

- San Francisco Fed President John Williams (2015 voter) sees the need to keep buying assets until “well into” the second half of 2013. He sees unemployment hitting 6.5 percent in the second half of 2015, suggesting he expects the Fed to keep rates low until then. He believes the current stance of monetary policy is “appropriate, right where it is.”

- Atlanta Fed President Dennis Lockhart (2015 voter) has not said how long he expects QE3 to last, except to suggest that it will not be forever. “‘Open ended’ does not mean ‘without bound.’ The program is not ‘QE Infinity’,” he said on Jan. 14.

- Richmond Fed President Jeffrey Lacker (2015 voter) opposes the current round of bond-buying and the adoption of thresholds to guide the Fed’s low-rate policy. He says quantitative easing has not sparked inflation yet but could do so next year.

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