Fed’s Stein puts focus back on September to assess QE future

NEW YORK • September could be an opportune time for the Federal reserve to consider scaling back its assets purchase, an influential official of the u.S. central bank said on Friday, though he said the Fed must take a long view of economic progress and not be blinded by the most recent data.

The remarks by Fed Governor Jeremy Stein drew the attention of economists and investors after he ticked off several examples of improvement in the labour market since the Fed launched its bond-buying program last September.

His speech, and a separate one on Friday by Jeffrey Lacker, president of the richmond Fed, had some parallels to efforts by other Fed officials earlier this week to soothe market anxieties about a pullback in the bond purchases. Nonetheless, the two officials showed a more aggressive tone on when the central bank’s unprecedented policy accommodation might be reduced and stock markets fell back.

The Fed’s purchase of Treasuries and mortgage bonds at a monthly pace of uS$85-billion has provided a huge flow of liquidity into financial markets, driving up assets from stocks to bonds.

yields on the benchmark 10-year Treasury note rose after Mr. Stein’s remarks, a sharp reversal of stabilization in the market earlier in the day.

Markets had dropped hard in the days after Fed chairman Ben Bernanke last week said the Fed expected to pare back on its bond purchases, known as quantitative easing, later this year and to halt it altogether by mid-2014, as long as the economy progresses as expected.

But Mr. Stein on Friday, in an unusual move, trained investors’ attention on the Fed’s September policy meeting, though the policy-

If the news is bad … the remainder of the program would be extended accordingly

setting Federal Open Market Committee will also meet in July.

“The best approach is for the committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting — as salient as these releases may appear to be to market participants,” said Mr.Stein, who is a voting member of the policy committee.

data from early September “will remain relevant for future decisions,” even if they do not play a primary role in any policy decision in September, he said, in a speech at the Council on Foreign relations in New york.

“If the news is bad, and it is confirmed by further bad news in October and November, this would suggest that the 7% unemployment goal is likely to be further away, and the remainder of the program would be extended accordingly,” he said.