Fed’s Lacker ’Not Disposed’ to $600 Billion Purchases

Federal Reserve Bank of Richmond President Jeffrey Lacker said he’s leaning against continuing the central bank’s plan to purchase $600 billion in U.S. Treasuries as the U.S. economy strengthens.

“I personally am not well disposed to going on with it, but we will see how the data breaks,” Lacker said today in an interview on Bloomberg Radio’s “The Hays Advantage,” with Kathleen Hays. “I was one at the last meeting who thought the risks exceeded the benefits. The benefits are kind of small. Risks, while small, would have made me tilt against doing it.”

The Fed said last month that it would buy $600 billion in Treasuries through June, expanding record stimulus to try to reduce 9.6 percent unemployment and keep inflation from dropping. Chairman Ben S. Bernanke is trying to boost growth after near-zero interest rates and $1.7 trillion in securities purchases helped pull the economy out of recession without bringing down joblessness close to a 26-year high.

“I take really seriously the references in the statement to us re-examining as we go along,” Lacker said in the interview in New York. “We are going to look at it every meeting.”

The central bank will “regularly review the pace of its securities purchases and the overall size of the asset purchase,” the Fed said in its statement last month.

Faster Growth

Asked if he would favor stopping the program now, Lacker said: “We have made the decision. We are going to follow through with it and make up our mind at any meeting. I’ll make up my mind going into any meeting if I think it is advisable to continue with the program or not.”

Lacker said recent U.S. economic reports may be showing an acceleration in growth.

“In the last couple weeks, we have seen some signs of continued strengthening in growth,” he said. “They are tentative, early at this point, but I think we are still on track to keep growing at around 2 percent and have that growth rate gradually pick up over the course of next year.”

The economy will grow about 2.75 percent to 3 percent next year, with “even odds” the unemployment rate will drop to about 9 percent. “Unemployment is going to fall slowly,” he said.

At the same time, it’s unlikely that the Fed will raise its target interest rate from near zero next year, the Richmond Fed leader said. It has been at that level since December 2008.

“Growth is kind of sluggish right now and inflation pressures are pretty darn quiet,” Lacker said. “I don’t put high odds on us needing to tighten next year.”

Reports since the Fed meeting show stronger economic data. The U.S. economy grew at a 2.5 percent rate in the third quarter, according to revised Commerce Department data Nov. 23, compared with a 1.7 percent rise in the second quarter. Employment in the U.S. rose in October for the first time in five months, the Labor Department reported Nov. 5.

The Fed’s preferred price measure, which excludes food and fuel, was up 0.9 percent from a year earlier in October, the smallest gain since records began in 1960. Fed policy makers have a long-run goal of 1.7 percent to 2 percent inflation they see as consistent with achieving legislative mandates for maximum employment and stable prices.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

Kathleen Hays in New York at khays4@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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