Fed heads weigh in on economy

Now that the Federal Reserve Board has cut the federal funds rate to 1%, the focus needs to be on increasing liquidity, St. Louis Federal Reserve Bank president James Bullard said yesterday. Speaking at a conference in Evansville, Ind., he said that any influence that interest rate reductions have in the near term will be “limited.” Instead, the Federal Reserve will need to be innovative in providing liquidity to markets through existing facilities, and possibly some new programs, Mr. Bullard said. An important part of the response to the financial market turmoil will be fiscal policy intervention, including a second stimulus package, he said. “It may be discomforting or rewarding or both, but stabilization policy in the coming months and quarters is likely to look very different from what we have been accustomed to seeing,” Mr. Bullard said. In another set of prepared remarks, Richmond (Va.) Federal Reserve Bank president Jeffrey Lacker was hopeful that an economic recovery can be in the cards for 2009. Speaking at the Tech Council of Maryland in Bethesda today, Mr. Lacker noted that “many analysts expect the U.S. economy to regain positive momentum sometime in 2009.” Calling prospects for a recovery a “reasonable expectation,” he said monetary policy is now “quite stimulative” and that the “major shocks that dampened economic activity this past year have subsided already, or are in the process of doing so.”