–Impediments To Stronger Growth Appear Beyond Capacity of Mon Policy
By Brai Odion-Esene
WASHINGTON (MNI) – Richmond Federal Reserve Bank President Jeffrey
Lacker Friday expressed his belief that additional monetary easing by
the Fed will not have a significant impact on the stuttering U.S.
recovery without fueling inflation at a rate that exceeds the central
bank’s comfort level.
“A significant increase in inflation could threaten the Fed’s
credibility and make it more difficult to achieve the Committee’s
longer-run goals, including maximum employment,” Lacker said in a
statement explaining his lone dissent against the Federal Open Market
Committee decision Wednesday to renew its maturity extension program.
Following its two-day meeting in Washington, the Fed’s steering
group said it expected growth would pick up “very gradually” over the
coming quarters while the stubbornly high unemployment rate would
decline “only slowly” towards levels consistent with its mandate.
As a result, the FOMC chose to continue its program — also known
as Operation Twist — through the end of the year. The Fed estimated
that this will result in approximately $267 billion of sales and
purchases at the current rate.
“I dissented on this decision because I do not believe that further
monetary stimulus would make a substantial difference for economic
growth and employment without increasing inflation by more than would be
desirable,” Lacker said.
The outspoken Richmond Fed chief added that while the outlook for
economic growth has clearly weakened in recent weeks, “the impediments
to stronger growth appear to be beyond the capacity of monetary policy
to offset.”
In its policy statement, the FOMC also stressed that, “The
Committee is prepared to take further action as appropriate to promote a
stronger economic recovery and sustained improvement in labor market
conditions in a context of price stability.”
That was viewed by Fed watchers as evidence that the door is not
closed on more quantitative easing.
But the threat of deflation appears to be the scenario under which
Lacker would countenance additional action by the Fed.
He noted that with inflation currently close to 2% — the Fed’s
explicit target — “Should a substantial and persistent fall in
inflation emerge, monetary stimulus may be appropriate to ensure the
return of inflation toward the Committee’s 2% goal.”
** MNI Washington Bureau: 202-371-2121 **
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