At a Fed Conference, Views Differ Sharply on Stimulus’s Effect

Unconventional monetary policy “has been a significant success altogether,” Christine Lagarde, managing director of the International Monetary Fund, said in a lunchtime address. She said the efforts continued to yield benefits and should not be unwound too quickly.

Even for developing countries, which have sometimes criticized the efforts, the effects are “still positive,” she said. “Marginally, but still positive.”

But the conference, convened by the Federal Reserve Bank of Kansas City, underscored again the striking divide between academics, where skepticism is widespread about the benefits of the Fed’s asset purchases, and policy makers, where confidence is equally widespread.

The Fed has accumulated more than $3 trillion in Treasury securities and mortgage-backed securities, and since last December it has been expanding those holdings by $85 billion a month in an effort to drive down unemployment and promote growth.

The day began with a series of academic presentations criticizing the power of that approach. The most supportive said that the Fed’s purchases of Treasuries had little value, but that its purchases of mortgage-backed securities “likely have had beneficial macroeconomic effects.”

That study, by Arvind Krishnamurthy, an economist at Northwestern University, and Annette Vissing-Jorgensen, an economist at the University of California, Berkeley, still found little economic benefit in holding on to the mortgage bonds and Treasuries, a basic element of the Fed’s stimulus campaign. And it argued the Fed was undermining its own efforts by failing to articulate a clear plan for the purchases.

Policy makers tend to view these critiques as triumphs of theory over reality. They point to events in June as a kind of perverse evidence, noting that a wide range of interest rates jumped after the Fed’s chairman, Ben S. Bernanke, announced that the Fed intended to reduce its monthly asset purchases by the end of the year. The implication, they said, is that the purchases had been suppressing those rates.

“The paper doesn’t comport very well with the experience of the last couple of months,” said Donald L. Kohn, a fellow at the Brookings Institution and a former Fed vice chairman. “We’ve had a very broad set of asset price changes.”

Academic economists, in turn, say policy makers are claiming credit without presenting evidence.

While it seems clear, for example, that the Fed’s purchases of mortgage bonds have reduced interest rates on mortgage loans, some economists see evidence that current economic conditions have limited the benefits of lower mortgage rates. Banks have retained some of the benefit rather than passing it on to customers. Tighter qualification standards mean that many would-be borrowers cannot benefit from the lower rates. And those who are borrowing may not be inclined to spend more.

“Showing Fed affects interest rates doesn’t mean it automatically affects real activity,” one of those skeptics, Amir Sufi, an economist at the University of Chicago, said on Friday in an exchange of messages on Twitter. “Quantitative significance must be established.”

These debates, of course, are not merely academic. Fed officials are divided over when to begin cutting their monthly asset purchases — and when they do so, they must decide whether to buy fewer Treasuries, fewer mortgage bonds, or some combination.

Mr. Bernanke chose not to attend the conference as he prepares to step down in January, and no other Fed official spoke in his place.

Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said on Friday that he would support a cut when the Fed’s policy-making committee meets in September as long as there was no particularly bad news between now and then.

“I would be supportive in September as long as the data that comes in between now and then basically confirm the path we’re on,” he told CNBC.

Mr. Lockhart, however, does not hold a vote on the Federal Open Market Committee this year. One official who does, James Bullard, the Federal Reserve Bank of St. Louis president, told CNBC in a separate interview that he was undecided. “I don’t think we have to be in any hurry in this situation,” he said. “Inflation is running low, you’ve got mixed data on the economy, so I’d be cautious. I wouldn’t want to prejudge the meeting.”

Policy makers from developing countries urged the Fed to clarify its plans so they can prepare for potential disruptions. Low interest rates in the developed world have sent vast quantities of money sloshing into those countries. Ms. Lagarde said that net flows to those countries had risen by $1.1 trillion since 2008, about $470 billion above expectations based on long-term trends.

As rates rise, history suggests that some of the money may come sloshing back, with hugely disruptive consequences.

Investors already are selling foreign currencies and buying dollars in the expectation that the Fed will begin to decelerate its stimulus campaign, allowing the dollar to strengthen. The Indian rupee lost 4 percent of its exchange value in about a week, prompting the Reserve Bank of India to impose restrictions last week on the outflow of money.

Agustín Carstens, governor of the Bank of Mexico, said, “Advanced country central banks should mind the spillover effects of their actions.” He added, “Otherwise the crisis will be reactivated with new actors.”

DealBook: The Sun Valley Conference Rolls Around, With Deals in the Air

Rick Wilking/ReutersRupert Murdoch arrived on Tuesday for Allen & Company’s annual media and technology conference.

SUN VALLEY, Idaho – “Well, folks, we talked to dispatch, and we have to go to Boise,” said the pilot of the Alaska Airlines flight on Tuesday afternoon.

The reason? About 12 planes were ahead in the queue for the tiny airport in Sun Valley, Idaho. About eight of them were private jets.

“There’s apparently a business conference,” the pilot said.

It was a sign that Allen & Company’s annual media and technology conference here was kicking into high gear.

For about three decades, many of the biggest movers in the media and technology worlds have gathered here to schmooze, to hear from special guest speakers and, on occasion, to put together potentially big transactions.

Long regarded as the birthplace of prominent mergers, the conference will play host to a number of industry giants who have made moves toward deals. Among them are Rupert Murdoch of the News Corporation, who recently cleaved his media empire in two and may be on the hunt for newspaper acquisitions; John C. Malone, the Liberty Media chairman and onetime cable tycoon who is weighing a potential takeover pursuit of Time Warner Cable (whose chief executive, Glenn A. Britt, is also on the guest list); and Michael White of DirecTV and Peter Chernin of Chernin Entertainment, who are both said to have bid for the online video service Hulu.

By Tuesday evening, many had arrived, attending a dinner hosted by Allen & Company’s Herb Allen. Spotted so far:

Mark Zuckerberg of Facebook, shaking hands and chatting with Eric Schmidt and Nikesh Arora of GoogleBrian Chesky of Airbnb, the home-sharing giant, and Ben Silbermann of Pinterest, the fast-growing social networkDick Costolo, the chief executive of Twitter, and his wife, LorinMarc Pincus of Zynga, not long after he gave up the chief executive role at the game companyJohn Donohoe of eBay, getting a bourbon at the Sun Valley InnJames Murdoch, walking back to the innMax Levchin, the serial entrepreneur and a Yahoo director, and his wife, NellieSebastian Thrun, the founder of the Google X Lab and now chief executive of Udacity, an online education providerHarvey WeinsteinWesley R. Edens of Fortress InvestmentDaniel L. Doctoroff of Bloomberg L.P.Brian C. Rogers of T. Rowe Price

DealBook is on hand at the conference to gather tips, gossip and possibly be tossed into the duck pond by an irate mogul. I’ll be posting both here and to my Twitter feed. Stay tuned.

Conference Board Offers Sign of Growth for Future

WASHINGTON — A measure of the economy’s future health rose solidly in April, buoyed by a sharp rise in applications to build homes and a better job market.

The Conference Board said on Friday that its index of leading indicators increased 0.6 percent last month to a reading of 95. The index declined 0.2 percent in March.

The index is intended to signal economic conditions three to six months out.

Kenneth Goldstein, an economist at the Conference Board, said the index was 3.5 percent higher at an annual rate than it was six months ago, suggesting expansion for the economy.

Mr. Goldstein said steady job gains and a recovering housing market were driving the economy and helping offset deep federal spending cuts that threaten growth.

The index is composed of 10 forward-pointing indicators. Strength in April came from the surge in building permits, a drop in applications for unemployment benefits and a rising stock market.

Holding the index back in April were weaker consumer confidence and a decline in the average hours worked at American factories.

A separate report on Friday showed that consumer confidence rose to almost a six-year high in early May. The University of Michigan’s consumer sentiment index rose to 83.7, from 76.4 in April.

Economists attributed the gain to high stock prices, cheaper gas and solid employment gains.

“Changes in confidence don’t always filter through into changes in spending, but the omens are good,” said Amna Asaf, an economist at Capital Economics.

The job market has also improved over the last six months. The economy has added an average of 208,000 jobs a month since November, compared with only 138,000 a month in the previous six months.

Unemployment has fallen to a four-year low of 7.5 percent.

A rebound in housing, along with a limited supply of homes for sale, has lifted the construction industry.

Construction cooled in April, as builders broke ground on fewer homes after topping the one million mark in March for the first time since 2008. But most of the decline was in apartment construction, which tends to vary sharply from month to month.

The most encouraging sign for the industry last month was that applications for new construction reached a five-year peak. That suggests that the housing revival will be sustained.