Back
14 Aug 2013
Fed’s Lockhart reiterates September reduction in Federal bond buying
FXstreet.com (New York) - In news that will certainly resonate through FX Markets, Atlanta Fed President Dennis Lockhart reported that the Federal Reserve could begin reducing its bond-buying stimulus as early as its September meeting – despite inflation still being below its targeted values.
September to remember?
One of the more pressing concerns facing investors and policymakers alike is that the U.S. economic performance is too volatile or unstable for Federal Reserve policymakers to initiate their comprehensive plan for both reducing and eventually halting their asset-purchasing program as early as next month.
Ultimately though, Lockhart appeared open or receptive to at least a modest pullback in Federal monetary stimulus from its current pace of $85 billion per month. "I wouldn't rule out September," he stated. "As I see it, a decision to proceed - whether it is in September, October, or December - ought to be thought of as a cautious first step."
Indeed, U.S. inflation has been running well below the Fed's 2.0% target for some time – historically very low. However Lockhart noted he did not see any signs that deflation was accelerating, reiterating that the current inflationary backdrop would still be consistent with a modest pullback in quantitative easing.
Limited US growth fosters concerns over stimulus withdrawal
Lockhart lauded the substantiated gains and sweeping progress across labor markets in the United States, though ultimately echoed a cautionary stance regarding the weak US economic growth. This has been at the forefront given the recent release of US GDP figures in Q2, which did rebound to an annual rate of 1.7% in the second quarter of the year, on the heels of two lackluster quarters.
"Recent data do not present a clear picture," he added. "Employment gains have been strong enough to lower the unemployment rate while GDP growth has remained lackluster." Alternatively, U.S. unemployment fell to 7.4% in July from 7.6% in June.
One key risk to the economy continues to come from Washington, Lockhart cited, noting the distinct possibility of some type of protracted squabble over the debt ceiling that roils consumer and business confidence, as it did in 2011. Still, even if fiscal hurdles are overcome and the expansion remains on track as planned, the bar and standard for a further retreat from asset buys will remain fairly high.
September to remember?
One of the more pressing concerns facing investors and policymakers alike is that the U.S. economic performance is too volatile or unstable for Federal Reserve policymakers to initiate their comprehensive plan for both reducing and eventually halting their asset-purchasing program as early as next month.
Ultimately though, Lockhart appeared open or receptive to at least a modest pullback in Federal monetary stimulus from its current pace of $85 billion per month. "I wouldn't rule out September," he stated. "As I see it, a decision to proceed - whether it is in September, October, or December - ought to be thought of as a cautious first step."
Indeed, U.S. inflation has been running well below the Fed's 2.0% target for some time – historically very low. However Lockhart noted he did not see any signs that deflation was accelerating, reiterating that the current inflationary backdrop would still be consistent with a modest pullback in quantitative easing.
Limited US growth fosters concerns over stimulus withdrawal
Lockhart lauded the substantiated gains and sweeping progress across labor markets in the United States, though ultimately echoed a cautionary stance regarding the weak US economic growth. This has been at the forefront given the recent release of US GDP figures in Q2, which did rebound to an annual rate of 1.7% in the second quarter of the year, on the heels of two lackluster quarters.
"Recent data do not present a clear picture," he added. "Employment gains have been strong enough to lower the unemployment rate while GDP growth has remained lackluster." Alternatively, U.S. unemployment fell to 7.4% in July from 7.6% in June.
One key risk to the economy continues to come from Washington, Lockhart cited, noting the distinct possibility of some type of protracted squabble over the debt ceiling that roils consumer and business confidence, as it did in 2011. Still, even if fiscal hurdles are overcome and the expansion remains on track as planned, the bar and standard for a further retreat from asset buys will remain fairly high.