Three more Federal Reserve officials reaffirmed Friday that the central bank does not want to take away monetary stimulus too soon, counter to the impressions left by Chairman Ben Bernanke’s press conference last week.
The Fed “is not only leaving the punch bowl in place, we’re continuing to spike the punch,” Richmond Fed President Jeffrey Lacker said in a speech in West Virginia. Lacker has been a critic of the Fed’s asset purchases in the past, but made it clear that tightening the money supply is not in the Fed’s immediate plans.
Lacker joined a bevy of other members of the Fed who tried this week to clarify the Fed’s monetary policy announcement and Bernanke’s statements to the press the week before. By the closing bell Friday, U.S. stock markets had made up much of the ground lost in the period since Bernanke’s comments, and yields on government bonds had settled slightly lower after reaching some of their highest levels in well over a year.
Lacker warned that economic growth might be limited by structural factors, meaning that the Fed’s manipulations of the money supply could not address the underlying problems. He said he came to this conclusion after continually overestimating the strength of the recovery: “Eventually I started feeling an affinity for Charlie Brown, trying time after time to kick the football that Lucy kindly offers to hold for him, only to yank it away.” Despite his own misgivings about the role of stimulus, he pushed back against the idea that the Fed was planning to taper its program.
Jeremy Stein, a Harvard professor appointed by President Obama to the Fed in 2012, echoed that assessment at an address given at the Council on Foreign Relations in New York, saying that it would be a “mistake to infer” from rising Treasury yields that the Fed had decided to pull back stimulus.
And John Williams, head of the Federal Reserve Bank of San Francisco, emphasized to the Sonoma County Economic Development Board that the Fed would ease off the monetary gas pedal only if the economy improved, and that even lowering the amount of bonds it purchases each month from the current $85 billion would not constitute a tightening of policy. “Not at all,” Williams said, explaining that monetary stimulus depends on the size of the Fed’s balance sheet, not the amount of quantitative easing per month.
Friday’s comments bring to eight the number of members of the Federal Reserve System who have weighed in on the market reaction to last week’s announcement, either in speeches or in press releases. Each has sounded a common theme, even if some of the details differ: investors have misread or overreacted to Bernanke’s press conference comments.