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Fed’s Lacker Says New Bond Buying Won’t Work and Risks Inflation

Federal Reserve Bank of Richmond President Jeffrey Lacker said he opposed a decision by policy makers this week to press on with additional bond buying because the effort is ineffective and may speed up inflation.

“Further monetary stimulus now is unlikely to result in a discernible improvement in growth, but if it does, it’s also likely to cause an unwanted increase in inflation,” Lacker said in a statement today. “Improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset.”

The Richmond Fed chief was the only policy maker to cast a dissenting vote at the Federal Open Market Committee’s Oct. 23-24 meeting, at which officials maintained $40 billion in monthly purchases of mortgage-backed securities and repeated that interest rates are likely to stay near zero through mid-2015. He has dissented from every FOMC decision this year.

Lacker said he “strongly opposed” additional purchases of mortgage-backed securities because it’s inappropriate for the Fed to tilt the flow of credit “to one particular economic sector,” according to the statement released today by the Richmond Fed.

Lacker, 57, has been president of his regional bank since 2004. He was previously the Richmond Fed’s director of research.

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