While he was careful not to downplay the gains that have been made recently in the job and housing markets, he cited the need for certainty and sustainability in the economy’s recovery before any scaling-back of economic stimulus could take place.
At the same time, he did his very best to dismiss the Cyprus bailout crisis as if it were no more than a casual nuisance, saying that he sees no major risk to U.S. banks, unless a run on the island’s banks spread to other European countries. “But to this point, I’m not aware of any evidence that that is, in fact, the case,” he said.
With Cypriot banks set to reopen on Thursday, the situation is still fluid. Whatever the outcome of that, the Fed has been for the most part in lockstep on messaging here at home regarding quantitative easing.
At breakfast with reporters this morning, Chicago Federal Reserve Bank president Charles Evans told reporters that he thought “it is best that we continue to provide strong confidence that we are going to be doing appropriate accommodative policies to get the economy going again”. He later said he was expecting the current QE program to last through 2013.
Boston Fed president Eric Rosengren, giving a talk on monetary policy and financial stability before the New Hampshire Bankers Association in New Hampshire said much the same thing. “the Federal Reserve’s policy of open-ended purchases of mortgage-backed securities and U.S. Treasury securities – currently proceeding at a pace of $85 billion a month – has contributed importantly to the gradual improvement in labor markets that we have seen, despite the fiscal headwinds. I will also argue that the costs of these policies are outweighed by their benefits, and by the costs likely to result if we did not pursue them.”
Meanwhile, Narayana Kocherlakota, President of the Minneapolis Fed, in a speech before several of Minnesota’s chambers of commerce, justified the Fed’s policy in what might be described as psychological terms: “the impact of monetary policy on the macroeconomy also depends critically on the private sector’s beliefs about the Fed’s future actions. To take an obviously hypothetical extreme: Suppose the private sector believed today that the Fed would return permanently to its 2007 policy stance at its June meeting. Then, the macroeconomic impact of the Fed’s highly accommodative stance over the next couple of months would be negligible.”
So for now, it seems as though the economy can count on the Fed’s monetary policy. With the exception of Kansas City Fed President Esther George, the harshest word on QE seems to be that it eventually will have to be wound down.
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