Business News : Two Fed officials cool to policy changes

St. LOUIS (Business News) - The U.S. economic outlook has not deteriorated to the point that a further easing of monetary policy is warranted, two top Fed officials said on Tuesday, suggesting the U.S. central bank is not gearing up for action at its upcoming meeting on June 19-20.

Both St. Louis Fed Bank President James Bullard and Dallas Fed Bank President Richard Fisher were cool to the idea of new Fed actions in response to weak U.S. economic data and boiling European financial tensions.

"The outlook for 2012 has not changed significantly so far," Bullard told a housing conference. "A change in U.S. monetary policy at this juncture will not alter the situation in Europe."

In fact, global investors' stampede to the safety of bonds, which has driven U.S. and other interest rates to record lows, could give U.S. policy makers additional breathing room, Bullard said.

"One possible (Fed) strategy is to simply pocket the lower yields and continue to wait-and-see on the U.S. economic outlook," he said.

The two officials' comments come after Sandra Pianalto, president of the Clev eland Fed, on Monday said the grim May jobs report does not warrant further monetary policy easing.

Pianalto is a voter this year on the Fed's policy-setting Federal Open Market Committee while Bullard and Fisher are not.

Congressional testimony by Fed Chairman Ben Bernanke on Thursday and a speech by Vice Chairman Janet Yellen on Wednesday will give a clearer sense of whether the most influential Fed officials are also willing to hold off taking any new steps many analysts think may be in the offing.

The Fed cut benchmark short-term rates to near zero three-and-a-half years ago and bought $ 2.3 trillion to pull the world's largest economy out of a deep recession and to support a fledgling recovery.

As the recovery seemed to stall last year, the Fed launched a program to exchange shorter-dated securities in the Fed's portfolio f or longer-term ones in an effort to drive down longer-term interest rates ends this month. It also issued a conditional pledge to hold rates near zero until late 2014.

Dynamics changed last week with a report that the U.S. jobless rate rose to 8.2 percent in May from 8.1 percent in April. Coming on top of a widening sense that turbulence in Europe is broad enough to dent the U.S. economy, the news gave rise to speculation the Fed could extend the maturity extension program or initiate a fresh round of new bond purchases as soon as its next policy meeting on June 19-20.

However, Fisher said in a speech in Scotland that policymakers at the Fed "must keep their heads about them" after a rash of weak economic data and resist simply seeking to solve economic problems with more monetary policy stimulus.

A confirmed inflation hawk, Fisher said the Fed should not be an " accomplice to the mischief" of fiscal policymakers in Washington who have not done enough to support the stumbling U.S. economic recovery.

Fisher was questioned on whether the maturity extending program, known as Operation Twist, was doing any good.

"I am extremely suspect about the efficacy of Operation Twist," he said.

Asked whether the May jobs report could prompt the central bank to embark on a third round of quantitative easing, Fisher said the Fed must be careful not to over react to economic data.

"Short of an implosion, I cannot support further quantitative easing," he said.

Further steps "would represent a form of piling on the already enormous uncertainty and angst that businesses face with our reckless fiscal policy," Fisher said. "To me, that would be the road to perdition for t he Federal Reserve."

In the past, Fisher has said the Fed has done enough, and perhaps too much, to stimulate the economy by easing monetary policy. He is in the minority of among top Fed officials, most of whom believe the Fed's actions have been necessary.

Meanwhile, Fed policymakers have warned that Congress must act to avert a "fiscal cliff" at the end of this year in which a series of tax increases and spending cuts are scheduled, threatening a U.S. economy that is already vulnerable to the European debt crisis.

"Unless fiscal authorities can structure their affairs to incent the private sector into putting the cheap and ample money the Fed has provided to the economy to work in job creation, monetary policy will prove impotent," Fisher said.

"My point is monetary policy is not the answer - it can only make things worse if t his monetizing is repeated."