Fed's Lacker Says More Easing Wouldn't Boost U.S. Growth

Federal Reserve Bank of Richmond President Jeffrey Lacker said more monetary stimulus wouldn’t do much to reduce unemployment or spur economic growth.

“My sense is that monetary policy isn’t capable of having a material effect on growth, or employment, or unemployment at this point,” Lacker said in an interview on the “Charlie Rose” show broadcast today. “I’m in the camp of being a bit of a skeptic about more monetary stimulus at this time.”

Lacker’s views are in the minority among members of the Federal Open Market Committee, the Fed panel that sets monetary policy, and he was the lone dissenter at the FOMC’s July 31-Aug. 1 meeting. Minutes of the gathering said “many members judged that additional monetary accommodation would likely be warranted fairly soon” unless economic reports pointed to a substantial pick-up in growth.

The FOMC’s Aug. 1 statement said the committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions.” Separately, Chairman Ben S. Bernanke said the Fed has the ability to take additional steps to boost the economy.

“There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,” Bernanke said in a letter dated Aug. 22 to Representative Darrell Issa, a Republican from California and the chairman of the House Oversight and Government Reform Committee.

Lacker dissented from the committee’s Aug. 1 decision to reiterate a conditional commitment to keep the benchmark lending rate close to zero “at least through late 2014.”

Dual Mandate

The unemployment rate has been higher than 8 percent for more than three years, which means the Fed isn’t meeting its dual mandate to achieve stable prices and full employment. Fed officials’ central tendency estimate for full employment was 5.2 percent to 6 percent in June.

“This economy’s been disappointing,” Lacker said on the show broadcast on PBS and Bloomberg Television. “It’s really trying our patience.”

Growth cooled to a 1.5 percent annual pace in the second quarter from 2 percent in the previous three months as consumers and companies pulled back. Regulatory and fiscal uncertainty are inhibiting economic growth, Lacker said.

“I get around and talk to businessmen, bankers, consumers all the time,” Lacker said in the interview with Rose. “There are good ideas out there, but they don’t know how to cost out a new plan, they don’t know what the tax rate’s going to be, they don’t know what the health care benefit costs are going to be for any workers they hire.”

Direct Purchases

The Fed has engaged in two rounds of quantitative easing, boosting total assets on its balance sheet to $2.83 trillion through direct purchases of Treasuries and mortgage-backed securities.

Bernanke said in his letter the Fed’s asset purchases “have helped to promote a stronger recovery” and avert deflation.

Lacker said the Fed’s 2010 asset purchase program “may have increased inflation a bit.”

“Inflation’s in a good place right now though,” he said. “I don’t think we want to push it up any higher.”

The Fed’s price benchmark, the personal consumption expenditures price index, rose 1.5 percent for the 12 months ending in June, below the FOMC’s 2 percent target.

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