WASHINGTON (Reuters) - Top officials at the Federal Reserve’s Philadelphia and Kansas City regional banks have voiced doubts whether additional action by the U.S. central bank would be effective in spurring growth.
Separate remarks by Philadelphia Fed President Charles Plosser and Kansas City Fed President Esther George highlight a split at the top of the U.S. central bank between policy hawks and doves, who are ready to take further action to boost the economy.
Financial markets have been watching carefully for signs of whether the Fed will launch a new round of bond buying, known as quantitative easing, as early as its next meeting, on September 12-13.
Plosser, in an interview with The Wall Street Journal published on Thursday, said he was “very dubious” whether additional bond purchases would have a positive impact.
“There are diminishing returns to these actions,” he was quoted as saying by the Journal in an article on its website. “The evidence is not strong that somehow more (bond purchases) are going to help the unemployment rate move faster to where we’d like it to be. I don’t see that there is much benefit.”
Plosser is not a voting member of the Fed’s policy-setting committee either this year or next.
The Fed in June decided to extend through the end of the year its “Operation Twist” program in which it sells short-term securities to buy long-term ones in order to drive long-term borrowing costs down. Several officials have argued robustly for further measures to shore up an economy they fear is stalling.
John Williams, the head of the San Francisco Fed, last week spoke in favor of another round of bond-buying. Similarly, Eric Rosengren, the head of the Boston Fed, voiced support for more bond purchases.
U.S. unemployment remains pinned above 8 percent, and many private forecasters expect economic growth will hover around 2 percent for the rest of 2012 and into next year, a pace that would bring down the jobless rate only very slowly, at best.
The U.S. economy also remains vulnerable to potential shocks from the sovereign debt crisis in Europe or the possibility that U.S. lawmakers may fail to avert tax hikes and spending cuts that will bite in January.
George, of the Kansas City Fed, who will hold one of the committee’s rotating votes in 2013, likewise sounded skeptical in remarks on Wednesday night that additional action would yield positive returns.
“Is there anyone not borrowing today or purchasing a house because interest rates aren’t low enough?” George said at a Fairfax Industrial Association event in Kansas City, Kansas, according to a report in the Kansas City Star newspaper.
“The more important question for my colleagues and me is whether the Federal Reserve should do any of that,” George said. “That, of course, is where our views begin to diverge.”
The Fed said earlier this month it would provide additional policy accommodation if needed to foster a stronger U.S. economic recovery.
U.S. interest rates have fallen to near historically low levels, but in the process of purchasing bonds, the Fed has massively expanded the size of its own balance sheet with the purchase of $2.3 trillion in Treasuries and housing-backed bonds, and George cautioned it had very little experience in moving the other way.
“It’s always easy to buy,” George said. “We’ve never had to go back into the market to sell this quantity of assets.”
Reporting by Alister Bull; Editing by Leslie Adler