Fed’s Lockhart Is Skeptical New Fed Action Will Help the Economy

"  --Lockhart supports current course of monetary policy 
   --Lockhart remains open to asset buying if circumstances warrant 
   --Lockhart: Fed shouldn't take any options off the table 
   --Lockhart: Unemployment to fall slowly through 2012 
   --Lockhart: US 4Q GDP likely between 2.5%-3% 
   --Lockhart: Europe can wound US most via unsettled financial markets 

   By Michael S. Derby 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Expanding the Federal Reserve balance sheet via new purchases of bonds isn’t the tonic the economy needs right now, even as European financial woes threaten the outlook for the U.S., a central bank official said Tuesday.

“I am skeptical that further asset purchases will produce much gain in terms of increased economic activity,” Federal Reserve Bank of Atlanta President Dennis Lockhart said. “I don’t believe further bond purchasing by the Fed is a potent policy option given the set of circumstances we currently face.”

Lockhart is currently a voting member of the monetary policy-setting Federal Open Market Committee, and his comments came from the text of a speech he was to deliver before an event held by the University of Georgia Terry College of Business. The official spoke amid rising expectations the weak state of the economy and high unemployment will soon drive the Fed to expand its balance sheet beyond the current $2.8 trillion level, most likely through purchases of mortgage securities.

Central bankers have been debating in public comments the need for additional stimulus over recent weeks. While a number are uncomfortable with going beyond what the Fed is already doing–it has short-term interest rates near zero and is tweaking its current holdings to make overall credit cheaper–a key faction of officials are leaning toward doing more. These officials include New York Fed President William Dudley, vice chair of the FOMC, and Fed second-in-command Janet Yellen, who said Tuesday “the scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of longer-term financial assets.”

Opponents of additional asset buying worry that in a time where many households are looking to cut debt, making credit cheaper simply won’t do much for the economy.”

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