Fed’s Lacker Says There’s No ‘Compelling Case’ for More Monetary Stimulus
Richmond Fed President Jeffrey Lacker
Jay Paul/Bloomberg
Federal Reserve Bank of Richmond President Jeffrey Lacker.
Federal Reserve Bank of Richmond President Jeffrey Lacker. Photographer: Jay Paul/Bloomberg
Federal Reserve Bank of Richmond President Jeffrey Lacker said he still doesn’t see the need for additional monetary stimulus and the central bank should avoid targeting specific markets such as mortgage debt with its policies.
“I am still where I was a month or two ago when I said I didn’t see a compelling case for further stimulus,” Lacker told reporters after a speech to the Risk Management Association in Richmond, Virginia. “The record of the last year and a half is that stimulus raised inflation and didn’t do much for growth on a sustained basis. And I think if we did it again, that is what would happen.”
U.S. central bankers will meet Jan. 24-25 amid a forecast for moderate 2012 growth by private forecasters that is unlikely to be strong enough to pull down the unemployment rate from a current 8.5 percent. The comments from Lacker, a voting member of the Federal Open Market Committee this year, suggest he might dissent against further monetary stimulus unless the economy faces the risk of deflation or a slump in growth.
The Richmond Fed chief in the text of his remarks told the group of risk managers in the Virginia capital that the year should bring “with it more modest expectations for monetary policy.”
“My takeaway from 2011 is the lesson that the impediments to more rapid U.S. growth are likely to be deeper and more persistent than we thought a year ago,” Lacker said. “I am expecting only a modest improvement for 2012.”
Growth Projection
Lacker forecast the economy will grow 2 percent to 2.5 percent this year. Economists surveyed by Bloomberg News this month predict the economy will expand 2.3 percent, according to the median estimate. Fed officials estimated in November that growth of 2.4 percent to 2.7 percent is needed to absorb unused productive capacity.
He also said he sees inflation of about 2 percent. The figure could be lower if global growth slows, he said. “But I still view the risks to inflation as tilted to the upside.” The personal consumption expenditures price index excluding food and energy rose 1.7 percent for the 12 months ending November.
Fed speakers have also been urging this month more policy action on housing to help boost overall growth.
Fed Chairman Ben S. Bernanke submitted a 26-page staff white paper on U.S. housing markets to members of Congress earlier this month, calling it “a framework for thinking about certain issues and tradeoffs.”
Housing, Economy
“Some actions that cause greater losses to be sustained by the” government-sponsored enterprises or GSEs “in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery,” the paper said.
GSEs include housing finance companies Fannie Mae and Freddie Mac, which are now under government conservatorship.
Lacker called the paper “something of a break” from the central bank’s posture of avoiding fiscal policy recommendations, and suggested the central bank should also refrain from buying mortgage-backed securities.
“I don’t think we should be targeting a specific market, even a market as dear to Americans’ heart as the housing market,” Lacker said.
‘Lengthy Adjustment’
The U.S. housing market “appears to be in for a lengthy adjustment process” as the market deals with oversupply and tighter lending standards, Lacker said.
“Substantial real income gains will be required before demand catches up to the current housing stock,” he said in the text of his remarks.
Payrolls rose by 200,000 in December, double the previous month’s gain. The jobless rate fell to 8.5 percent, while hours worked and earnings climbed. Sustained hiring is needed to support household spending which accounts for about 70 percent of the U.S. economy.
Lacker called the jobs report “a heartening sign of a potential firming trend.” Still, the labor markets are struggling with skill mismatches that arise as workers from slow-growing industries such as construction seek to find jobs in faster-growing ones.
“Labor-market mismatch might account for between 0.8 and 1.4 percentage points of the increase in unemployment in this recession” according to one study, the Richmond Fed president said.
To contact the reporter on this story: Craig Torres at ctorres3@bloomberg.net and
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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