Speaking separately Wednesday, the three Fed officials — Federal Reserve Bank of Atlanta President Dennis P. Lockhart, Federal Reserve Bank of San Francisco President John Williams and Fed governor Janet Yellen — all sounded the alarm about the economy’s direction in more dire terms than they’ve recently used, and all appeared more open to new action.
Yellen, speaking in Boston, said that she considers “the balance of risks to be tilted toward a weaker economy,” while Williams, making remarks in Bellevue, Wash., said, “We must also stand ready to do even more if needed to best achieve our statutory goals.”
The officials’ views are especially important because they occupy three of the 12 voting spots on the Federal Open Markets Committee, which sets Fed policy. Yellen’s views often correspond closely with those of Fed Chairman Ben S. Bernanke, who is scheduled to testify in Congress on Thursday.
While it was clear Wednesday that the Fed is more openly considering new efforts to spur economic activity, it was not clear from the officials’ comments whether the economy is already in bad enough shape to justify additional action. The Fed will hold policymaking meetings this month, once more during the summer, and then in September and October.
Before Yellen spoke Wednesday night, JPMorgan Chase chief economist Michael Feroli wrote that Lockhart and Williams “were more open-minded about providing additional stimulus relative to their last talks. At the same time neither indicated that they had made up their minds that the economy needs further Fed action.”
The Fed has two legal objectives: keeping as many people as possible employed and keeping prices stable. It has lately failed to meet the first objective, with the unemployment rate above 8 percent, while it has largely succeeded at the second. Inflation has run at around 2 percent per year, in line with what economists consider healthy for a growing economy.
The Fed put its efforts to stimulate the economy on hold earlier this year for several reasons. A number of officials thought that the economy was gaining enough momentum that it didn’t need more support — and that attempting to turbocharge the recovery could lead to a hard-to-contain rise in inflation.
In addition, officials have been concerned about whether additional measures could do much more to help the economy. The Fed’s efforts largely support economic growth by reducing interest rates, thus spurring lending, borrowing and overall economic activity. But interest rates are already at historic lows.
The Fed officials who spoke Wednesday seemed to be open to a range of new actions. A modest step could involve the Fed simply saying clearly that it is committing to keep interest rates low for several more years or exchanging short-term securities it owns for longer-term securities, thus bringing down long-term interest rates.
A more dramatic approach would involve purchases of additional securities — Treasury bonds and mortgage assets — and would suggest that the Fed is deeply concerned about the path of recovery and wants to flood the economy with more money to support growth.
The officials’ comments Wednesday were dour, but the Fed itself released a somewhat more upbeat overview of the economy based on anecdotal reports from around the country. The “beige book” said the economy was continuing to expand moderately.