Not yet time to remove US stimulus

RICHMOND – The US economy still needs support from the Federal Reserve even if growth prospects appear firmer, top Federal Reserve officials said on Friday.

The expansion must become more stable and broad-based before the Fed reverses its current policy, and even more stimulus may be needed if the housing market hampers the rebound, said Boston Fed Bank President Eric Rosengren.’There will be a time when these aggressive actions need to be reversed, but first we need to get the economy on a much more solid footing,’ said Rosengren, who is considered one of the more dovish members of the Fed, and rotated out of a voting slot in the Fed’s policy-setting panel this year.Daniel Tarullo, a governor of the Fed’s Washington-based board, told CNBC he saw no reason to tinker with the central bank’s US $600 billion bond buying programme.However, Jeffrey Lacker, the hawkish Richmond Fed Bank president who has been skeptical of the Fed’s latest round of bond purchases, appeared more keen on reviewing the programme.’The provision of further monetary stimulus at this point in the business cycle is not without risks,’ Lacker told the Risk Management Association’s Richmond, Virginia, Chapter.’While the outlook may not have improved enough just yet to warrant adjusting our purchase plan in the near-term, I anticipate earnest re-evaluation as economic developments unfold in coming months,’ he said.Lacker offered a rather positive outlook for the US economy despite ongoing troubles in housing and a labour market that remains too anaemic to generate jobs for the millions of Americans who lost them during a deep recession in 2008-09.He said he expects gross domestic product to expand between 3,5 per cent and four per cent this year, a bit more optimistic than Fed Chairman Ben Bernanke, who predicted growth between three per cent and four per cent in remarks on Thursday.But Rosengren was much more guarded. He said that though recent data has been ‘consistent with a somewhat happier new year,’ Rosengren said the recovery is still weak in the world’s biggest economy.’Even with a relatively robust recovery, it will take several years before we attain full employment and an inflation rate close to a long-run expectation of two per cent,’ he told the New England Mortgage Expo.Consumer prices outside food and energy rose just 0,8 per cent last year, the Labour Department said on Friday. Meanwhile, unemployment remains elevated at 9,4 per cent.The Fed embarked on the US$600 billion round of Treasury securities purchases in November, an unprecedented move that garnered much criticism from those worried it would eventually spark a sharp run-up in inflation.Lacker is one such skeptic, and he urged policymakers to focus on the level of growth rather than some vague notion of its full potential. – Nampa-Reuters