Two regional Federal Reserve presidents on Monday cast doubt on the notion, widely prevalent in financial markets, that the central bank will ease monetary policy further at its Sept. 20-21 meeting.
Richard Fisher, president of the Dallas Fed, told a conference of the National Association of Business Economics that there was little more policymakers could do to help the economy. His counterpart in St. Louis, James Bullard, said no decision had been made on further easing, adding that the central bank had already been very aggressive in bringing down borrowing costs.
"While disappointing economic performance certainly makes the case for an aggressive monetary policy, the FOMC has in fact provided that aggressive policy," St. Louis Fed President James Bullard said in prepared opening remarks at an event at the regional central bank's headquarters.
Bullard and Fisher do not represent the consensus view championed by Fed Chairman Ben Bernanke, who has strongly hinted at the possibility of further action. But they do remind investors that the central bank will not be united if it decides to delve even further into the realm of unconventional monetary policy.
U.S. growth was extremely weak in the first half of the year, and has recovered only modestly in the third quarter. Worse yet, unemployment remains above 9 percent, and job growth stagnated in August, raising concerns about a new recession.
In response to the financial crisis and a deep recession, the Fed not only slashed interest rates to effectively zero but also expanded its balance sheet to a record $2.9 trillion, raising concerns among some top policymakers and politicians about the prospect of future inflation.
Bullard is not a voter on the Federal Open Market Committee this year, but Fisher is. In August, Fisher dissented against the Fed's promise to keep rates low until at least 2013, and said he expects others to follow suit.
"I expect more dissents," Fisher said after his speech at the NABE conference.
On Monday, both he and Bullard made the case that the policy of setting a specific timetable for policy was wrong-minded.
"Now, with further slowing in the economy, some call for further monetary accommodation. Let me stress that no decision has been made on this difficult question," Bullard said. "However, should such a decision be made, I think it is time for the Committee to discard one-time policy changes with fixed end dates."
The best the Fed can do, Fisher suggested, is to work to reduce regulatory burdens that keep credit from flowing to small businesses.
"We must be ever-mindful that the central bank cannot carry the load alone," Fisher said. "Indeed, there is great danger in any temptation to do so."
The Fed's September meeting was expanded to two days from just one so that policymakers can discuss all options available to help an economy that continues to struggle.
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