March 25, 2011

Interest Rates to Remain Low, QE3 Unlikely, Says Fed President Lockhart

No plans to extend $600 billion bond buyback program

The U.S. economic recovery is on solid ground, making it unlikely the Federal Reserve will extend its bond-buying stimulus program, Atlanta Federal Reserve Bank President Dennis Lockhart said on Friday.

Still, growth is still weak enough and inflation is sufficiently low—despite recent increases in food and energy prices – to allow policymakers to keep interest rates very low, Reuters reports.

"I remain satisfied that the current stance of monetary policy is appropriately calibrated to the current and projected state of the economy," Lockhart told the Bonita/Estero Market Pulse Conference.

The wire service said the remarks suggested Lockhart and his colleagues at the Fed plan to continue their program of $600 billion in government bond purchases through to its June deadline, but have no plans to extend the program beyond that.

Asked about the chances of another round of quantitative easing, often referred to as QE3, Lockhart said: "It's a high bar."

The Fed earlier this month unanimously decided to forge ahead with the $600 billion bond-buying program and reiterated a pledge to keep interest rates, currently near zero, at very low levels for an extended period.

The policy has proved controversial politically, with many Republicans accusing the U.S. central bank of sowing the seeds of future inflation.

Lockhart fought back against the notion that Fed officials exclude inconveniently high costs such as food and energy from their policy calculus.

"Contrary to popular opinion, Federal Reserve officials do actually eat and fill up their gas tanks," Lockhart said.

Lockhart said he does not expect a recent uptick in inflation to persist.

He said the U.S. job market has been making gradual strides, but argued that the steep recent drop in the jobless rate—to 8.9% in March from 9.8% in November—was not all good news.

"(It) involved many people leaving the workforce, presumably because they were discouraged," Lockhart said.

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