Update: Equities Recover On Dovish Fed Comments

Equities have slowly recovered throughout the day, helped in large part by continued talk of accommodative monetary policy from the Fed. With less than 90 minutes left in the trading day, the S&P 500 is back to 1,562, trending towards the upper end of its 20 point range, and points away from its record close of 1,565.15.

The Federal Reserve shouldn’t scale back the pace of its bond-buying program anytime soon, said Charlie Evans, president of the Chicago Federal Reserve Bank. “I think it is …very successful. I can’t see that those are the parameters for doing less,” Evans told reporters at a press conference on Wednesday. Evans said he expects purchases of $85 billion of Treasuries and mortgage-backed securities to continue each month through the end of the year, although circumstances might change. “I think this is the point where we have to be patient and let our policies work,” Evans said. It was important to be “really careful” about the signal that reducing bond-buying would send, he said. Evans said he was open-minded and a couple of months of job growth over 300,000 would get his attention. Evans said the benefits of the purchases dwarf the potential costs. “At the moment, it is not even a close call,” he said.

Minneapolis Fed Bank chief Narayana Kocherlakota, one of the more dovish members of the Fed’s policy-setting committee, repeated his view that the best way to boost the economy was to lower the Fed’s jobless rate threshold on interest rate guidance to 5.5 percent. With modest U.S. growth keeping inflation in check, he suggested that the Fed ease monetary policy even further to bring the rate of U.S. unemployment down at a faster pace. Kocherlakota, who is not a voting member of the policy-setting committee this year, expects the jobless rate to be close to 7 percent by the end of 2014, and forecasts growth around 2.5 percent this year and 3 percent next year.

Meanwhile, Boston Federal Reserve President Eric Rosengren, a leading Fed dove who is a voting member of its policy-setting committee this year, said on Wednesday that there is “little evidence” Fed bond purchases have caused financial instability and since the measures are working they ought be continued for the rest of 2013. He also played down talk of asset bubbles forming.

The only outlier today was Sandra Pianalto, the Cleveland Fed President, who said the central bank should consider tapering off the pace of its bond-buying stimulus plan if the U.S. economy continues to show signs of improvement. She said she was encouraged by more robust job growth in recent months after a February report showed 236,000 new positions were created last month.

The Fed last week voted to maintain asset purchases at a $85 billion monthly pace until it saw a substantial improvement in the outlook for the labor market, while pledging to hold interest rates near zero until the jobless rate hit 6.5 percent, provided inflation remained under 2.5 percent.

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