Fed Ready With Remedial Measures, If Economy Health Worsens

US Federal Reserve officials did not rule out the possibility of providing the economy with additional monetary stimulus, but felt that it would be required only if the decline worsened further.

Fed Board Governor Raskin said, that the US central bank was prepared to do whatever was possible to bolster the economic resurgence, whilst William Dudley, President of the New York Fed, stressed that the recovery was at a vulnerable stage.

Raskin said, “Some economic news has been encouraging and may be suggesting that the pace of the recovery is picking up. Referring to the drop in the unemployment, Raskin said, “However, the national economic recovery clearly has a long way to go.”

Janet Yellen, the Fed’s prominent vice chair, said late Wednesday, that the bank’s policy of virtually zero interest rates was justified given the turbulence that the economy was facing. She further said that the bank had a range of options to choose from and they were well disposed to take whatever actions required to achieve its mandate.

However, not all agreed with what Yellen said. Her defence of the Fed’s guidance that it was likely to leave interest rates near zero until late 2014 and maybe into 2015 as well, was opposed by Philadelphia Fed President Charles Plosser, who on Thursday suggested that central bank should shift  from the approach of suggesting a specific calendar date for the start of rate hikes. He told reporters, “I’d like to get us to move away from that and substitute something that’s a little more systematic and coherent about how it depends on the economy.”

Yellen, second only to Bernanke, pointed out what the Fed Chairman Bernanke had cautioned and said that the job market remains “far from full employment” “Considerable uncertainty surrounds the outlook and I remain prepared to adjust my policy views in response to incoming information,” she said.

Even though no fresh policy measures are to likely to be announced in the next Fed meeting scheduled for April 24-25, some important discussions are likely to take place.

Financial markets are keeping their ears to the ground for signals that indicate that the Fed might expand its asset-buying program and also keep the interest rates near zero. Reuter’s poll conducted after the unsatisfactory March employment report indicates that another round of bond-buying will take place.

Plosser and others at the Fed say that monetary stimulus is not the answer and would not increase jobs. Moreover, it would increase the risk of inflation and ‘complicating an eventual exit from the low rates policy.’ “Maximum employment is largely determined by factors that are beyond the control of monetary policy,” Plosser said.