INTERVIEW-Fed bond buys warranted despite improving economy -Lockhart
ATLANTA, Feb 19 (Reuters) - The Federal Reserve's latest monetary stimulus program is still appropriate through the end of this year given an anemic labor market despite the U.S. economy's brightening prospects, a top Fed official told Reuters on Tuesday.
Atlanta Federal Reserve Bank President Dennis Lockhart, who is seen as a bellwether centrist at the central bank, said in an interview the avoidance of the so-called fiscal cliff earlier this year has removed some of the uncertainty that had weighed on the U.S. recovery.
Lockhart said that makes it possible the economy might grow above the 2 percent to 2.5 percent range he has forecast.
Nonetheless, with the unemployment rate still stuck at an elevated 7.9 percent and monthly job growth barely keeping up with population growth, a strongly supportive Fed stance is still needed, he said.
"We have a long way to go, particularly in the employment realm, before the economy reaches its full potential," Lockhart said at his office in Atlanta. "Therefore a continuation of this highly accommodative stance that includes the efforts of quantitative easing is appropriate, is a sensible policy."
In response to the financial crisis and deep recession of 2007-2009, the Fed not only lowered official borrowing costs to effectively zero, but also bought more than $2 trillion in Treasury and mortgage securities in an effort to lower long-term borrowing costs and stoke investment.
Lockhart said he believes asset purchases will be warranted until the end of 2013 given the current outlook. Still, he was clear that while open-ended, bond buys would not be infinite.
Indeed, Lockhart said policymakers must be mindful of the risks from unconventional policies like asset purchases, although he did not believe the potential costs of the policy were coming close to outweighing its tangible benefits.
"Our policy has benefited the economy and the improving situation that we're now seeing now is at least in part a result of accommodative monetary policy," Lockhart said. "I would not say at this point that in any respect the costs, which are largely long-term and speculative, outweigh the benefits of maintaining a highly accommodative climate."
In particular, Lockhart said he did not currently see any signs the Fed's loose monetary stance was creating bubbles or leading certain markets to overheat. Fed Governor Jeremy Stein recently flagged potential risks in the corporate bond market.
The U.S. economy shrank unexpectedly in the fourth quarter and, while the pullback was seen as a temporary blip, many analysts still expect growth to remain too weak to allow for substantial further progress on bringing down the jobless rate.
Lockhart said the economy would need to produce more than the recent average of 150,000 jobs per month before the Fed can claim it has made substantial improvement on the jobs outlook - a precondition for the cessation of asset purchases.
Lockhart said the biggest threat to economic growth now remains erratic shifts in budget policy from Washington.
"There are simply a lot of hurdles in this race that we have to get over. Some combination of gridlock could really undermine confidence that seems to be building at the moment," he said.
(Reporting By Pedro Nicolaci da Costa; Editing by Neil Stempleman)