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Fed’s Lacker Says More Purchases ‘Hard Case to Make’

Fed’s Lacker Says More Purchases ‘Hard Case to Make’
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond. Photographer: Chris Keane/Bloomberg

Federal Reserve Bank of Richmond President Jeffrey Lacker said a new round of asset purchases by the central bank “would be a hard case to make” with economic growth in line with his outlook.

The Beige Book report released by the Fed today shows “what I expected several months ago,” which is an economic expansion of about 2 percent during the second half, Lacker told reporters in College Park, Maryland. He said he would make up his mind on monetary policy when Fed officials meet in two weeks.

Lacker’s comments contrast with Fed Chairman Ben S. Bernanke, who said Oct. 15 that he sees a “case for further action” with inflation too low and unemployment too high. Lacker is among several Fed policy makers who have voiced doubt that the benefits of further asset purchases outweigh the potential costs.

Economists at firms including Goldman Sachs Group Inc. expect the Fed to announce the purchase of securities at the end a two-day policy meeting on Nov. 3.

Earlier today, the Fed said in its Beige Book business survey that the U.S. economy expanded at a “modest pace” in September and early October with little sign of accelerating and companies still hesitant to hire.

Asked if he’s concerned about the weakening in the U.S. dollar, Lacker said the currency is “responding to shifting expectations about policy in different countries.” While a decline increases the cost of imports, “it’s going to be favorable for our manufacturing exports, so you have to take into account a range of effects,” he said.

Lacker, 54, has led the Richmond Fed since 2004. Fed presidents rotate voting on monetary policy with Lacker next voting in 2012.

Inflation Goal

While Lacker has previously advocated adopting a numerical inflation goal, he said he was skeptical about announcing it in the Fed’s policy statement or trying to increase the public’s inflation expectations, two options the Fed may consider.

“I’m not sure that’s the appropriate place for it, just because you want an objective to be viewed as chiseled in stone and not frequently changed,” Lacker said of putting an inflation target in the statement. He spoke at an economics seminar for the press held by the Richmond Fed at the University of Maryland.

Lacker said he doesn’t have a “lot of confidence that we can engineer through our statements or actions variations in expected inflation at a relatively frequent periodicity.”

The Richmond Fed chief reiterated that he prefers an inflation rate of about 1.5 percent. Inflation, measured by central bankers’ preferred gauge of the personal consumption expenditures price index, minus food and energy, has been below the Fed’s goal for five consecutive months. The price measure rose 1.4 percent for the 12 months ending in August.

Bernanke last week cited the index’s 1.1 percent annual pace for the first eight months of 2010. Most Fed officials’ long-term preferred range for the inflation rate is about 1.7 percent to 2 percent.

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