Everyone on the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) is willing to ease monetary policy further, but Fed officials’ conditions for further credit easing vary widely.
There are those who are ready to inject more monetary stimulus right now. Others would be prepared to provide yet more monetary accommodation if the economy doesn’t improve soon. And some would ease more only if the economy, and economic outlook, deteriorate further from the downwardly revised forecasts the FOMC made in November, and only if disinflation becomes excessive.
The Fed leadership troika, Chairman Ben Bernanke, Vice Chair Janet Yellen and New York Fed President William Dudley, form a fourth category, having understandably struck a more ambivalent, wait-and-see pose. But they have shown an easing bias.
The recovery remains subpar, and the FOMC calls the downside risks "significant." With the intensification of the European crisis, there is much angst about transatlantic spillovers. So the odds of further easing in 2012 look high, but there is no consensus on timing or type.
Leading the way for immediate easing is Chicago Fed President Charles Evans. An advocate of a third round of large-scale asset purchases (QE3), including mortgage-backed securities, he says the Fed faces a grave "liquidity trap" and "ought to be behaving as if there is a very big problem" with unemployment.
Evans argues the Fed should tolerate inflation up to 3% to cut unemployment and may need to keep the federal funds rate at zero well beyond the mid-2013 date that the FOMC has targeted. He’s pushing for a pledge to keep it there until the unemployment rate falls below 7% and/or the inflation rate goes above 3%.
Most officials would prefer a more "state-contingent," less date-certain statement. San Francisco Fed President John Williams, a 2012 FOMC voter, also is inclined to ease soon. Even before the European debt crisis reached fever pitch, he was saying "additional monetary policy accommodation — either in the form of additional asset purchases or further forward guidance on our future policy intentions — may be needed to bring us closer to our mandated objectives of maximum employment and price stability."