Fed official says taper would be ‘first step’

Investors hoping for certainty from the Federal Reserve about what specifically the central bank is going to do with its asset purchase program may be disappointed, a senior official said. The uneven performance of the economy has not permitted the Fed to provide certainty to the markets, and the central bank will likely not have enough data to do so at its next meeting in September.

By Greg Robb
Aug. 13, 2013, 2:04 p.m. EDT
Market Watch

WASHINGTON (MarketWatch) — Investors hoping for certainty from the Federal Reserve about what specifically the central bank is going to do with its $85 billion-a-month asset purchase program may be disappointed, a senior official said Tuesday.

Dennis Lockhart, president of the Atlanta Fed, said that the “uneven performance” of the economy has not permitted the Fed to provide certainty to the markets, and the central bank most likely won’t have enough data to do so at its next meeting in September.

Lockhart said he expects the economy to improve over the balance of the year with a further acceleration in 2014. But clarity about the near-term direction of the economy will be lacking for some time, he said.

“I don’t expect to have enough data to be sure of my outlook” in September, Lockhart said.

“For this reason, I don’t think a decision that commits the Fed to a full phase-out of asset purchases and lays out a precise, beginning-to-end path for doing so would be advisable” in September, he said.

But he didn’t rule out that the Fed would start slowing down the pace of asset purchases at the Sept. 17-18 meeting.

“As I see it, a decision to proceed — whether it is in September, October, or December — ought to be thought of as a cautious first step,” Lockhart said.

The Atlanta Fed president is not a voting member of the Fed’s policy-making committee this year. He is considered one of the less ideological of the top Fed officials and his views are often close to the consensus.

U.S. stocks SPX +0.29% extended gains after Lockhart’s remarks. Read Market Snapshot.

Economic performance will dictate the path of policy, Lockhart stressed.

Lockhart said his forecast of an improving economy was “not a sure thing.”

There is a risk of a confidence shock from a stalemate in Washington over fiscal policy, he said.

It is also important that the employment progress over the past year is not stalling and that disinflation pressures are not building, he said.

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