Fed’s Lacker Opposed QE3 as Tantamount to Fiscal Policy

Richmond Federal Reserve President Jeffrey Lacker said that he opposed the central bank’s third round of quantitative easing in mortgage-backed securities because allocating credit should be the province of fiscal authorities such as the U.S. Treasury or Congress.

“I strongly opposed purchasing additional agency mortgage- backed securities,” Lacker said in a statement released yesterday by the Richmond Fed. “Such purchases, as compared to purchases of an equivalent amount of U.S. Treasury securities, distort investment allocations and raise interest rates for other borrowers.”

Lacker said that “channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve.”

Lacker was the lone dissenter to the Federal Open Market Committee’s Sept. 13 decision to purchase $40 billion a month in mortgage debt until the labor market improves and to hold interest rates near zero until at least mid-2015. Lacker has dissented from every FOMC decision this year.

The Fed said in last week’s statement that “highly accommodative” monetary policy will “remain appropriate for a considerable time after the economic recovery strengthens.”

The Richmond Fed chief said he also opposed this language and that “an implied commitment to provide stimulus beyond the point at which the recovery strengthens and growth increases would be inconsistent with a balanced approach to the FOMC’s price stability and maximum employment mandates.”

Lacker, 56, has been president of his regional bank since 2004. He was previously the Richmond Fed’s director of research.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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

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