Fed official backs open-ended QE3, eyes $600 billion

 

San Francisco Federal Reserve Bank President John Williams said on CNBC television the Fed's two quantitative easing programs have had benefits and argued the central bank should be moving toward an "open-ended" QE3 that would not be limited by a dollar value.

 

"Additional monetary accommodation would be very useful to boost the economy, speed the recovery along somewhat, and help get unemployment moving toward its full employment goal over the next few years," Williams, a voter this year on Fed policy, said from a central bankers' conference in Jackson Hole, Wyoming.

 

"I am concerned that we could be stalling at the current high level of unemployment."

 

In a separate interview with Bloomberg TV, Williams said he would argue for a series of purchases that would eventually rival the $600 billion size of the Fed's second round of bond purchases.

 

"I would like to see something that had a measurable effect on job growth and on the unemployment rate over the next few years," he said. "That would be arguing for a pretty large program, probably at least as large as QE2, or maybe even larger."

 

Fed Chairman Ben Bernanke on Friday said progress reducing unemployment had been too slow, and he called the labor market's stagnation a "grave concern.

 

While Bernanke stopped short of giving a clear signal a fresh round of bond purchases was imminent, financial markets ramped up bets of a further easing of monetary policy at the central bank's September 12-13 meeting.

 

Fed policymakers have considered the usefulness of an open-ended bond-purchase program. Both QE1 and QE2 were connected to specific dollar values and time frames, seen by some as lacking the flexibility to react to economic changes.

 

"A basic principle of good monetary policy is you adjust policy based on what's happening in the economy and the outlook," Williams told CNBC. "The open-ended approach allows you to do that better, I think."

 

Without further policy action, growth will stay near 2 percent this year and rise a bit next year, he added, while the unemployment rate should stay near the current 8.3 percent at least for another 18 months.

 

Copyright @Thomson Reuters 2012