E. Gerald Corrigan, former Federal Reserve Bank of New York president, said he’s concerned that the central bank’s effort to boost inflation by expanding stimulus risks causing price increases out of the Fed’s control.
“Even in the face of substantial margins of underutilization of human and capital resources, efforts to achieve an upward nudge in today’s very low inflation rate make me somewhat uncomfortable,” Corrigan, chairman of Goldman Sachs Group Inc.’s bank subsidiary, said in prepared remarks at a Fed conference on Jekyll Island, Georgia.
Corrigan was scheduled to deliver the comments on a panel discussion today alongside Fed Chairman Ben S. Bernanke and his predecessor, Alan Greenspan. Corrigan, 69, was a policy maker under former Fed Chairman Paul Volcker, who raised interest rates as high as 20 percent to beat inflation, pushing the economy into the 1981-82 recession.
“There is a risk -- however small -- that once that nudge takes hold, it may not be easy to cap inflation and inflationary expectations at levels that are still broadly compatible with price stability,” said Corrigan, who headed the New York Fed, the central bank’s liaison with Wall Street, from 1985 to 1993.
The New York Fed is the only one of the 12 regional Fed banks that votes at every monetary-policy meeting. The Jekyll Island conference is co-sponsored by the Atlanta Fed and Rutgers University.
The Fed decided Nov. 3 to purchase $600 billion of Treasuries in a bid to lower unemployment and avert deflation, adding stimulus to near-zero interest rates and the $1.7 trillion of asset purchases through March of this year. The central bank said it took the action “to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”
The Fed’s preferred gauge for consumer prices, which excludes food and energy, rose 1.2 percent in September from a year earlier, the slowest pace since 2001. 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.
Corrigan said he has a “very high degree of confidence in the Fed’s ability to navigate through these uncharted waters” and that his concern about “low probability contingencies” doesn’t detract from his “admiration and respect for the Fed and its tradition of great leaders past and present.”
“I believe that the policy dilemmas faced by the Fed today are more acute than at any point in the 40-plus years that I have been a participant in, or a close observer of, the monetary policy process,” said Corrigan, who also served as president of the Minneapolis Fed.
Bernanke, 56, chairman since 2006, said in a Washington Post opinion article following this week’s decision that the central bank “will take all measures necessary to keep inflation low and stable.”
Corrigan, in his prepared text, said monetary policy “is not a panacea for all of our economic and financial ills” and that “when the risk of a policy miscalculation is high in either direction, the prudent course of action should be to proceed slowly.” The Fed will have a “challenging” transition back to a “more ‘normal’ monetary policy” once the economy improves, he said.
At the same time, the “underlying resiliency of the U.S. economy should not be underestimated,” said Corrigan, who joined Goldman Sachs in 1994.