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Lacker Says Recent Disinflation to Change to Price Gain

Federal Reserve Bank of Richmond President Jeffrey Lacker said a slowing in inflation is temporary and prices will probably rise at about a 2 percent annual rate.

“The recent dip is transitory,” Lacker said today to reporters after a speech in Baltimore. “We’re going to get back to 2 percent” for annual inflation, he said, while citing “risks in the inflation outlook a couple of years ahead.”

Central bank officials, including St. Louis Fed President James Bullard, said last month persistent disinflation may require the Fed to provide stimulus beyond $85 billion in monthly bond purchases. Consumer prices rose 1 percent in March from a year earlier, the lowest level since October 2009, according to the Fed’s preferred gauge of inflation.

Lacker, who doesn’t vote this year on the Federal Open Market Committee, has criticized the committee’s decision to press on with monthly purchases of $40 billion a month in mortgage securities and $45 billion of Treasuries that have expanded the Fed balance sheet to a record $3.32 trillion.

The FOMC said May 1 that it may accelerate or slow bond buying in response to changes in the labor market and inflation. It left unchanged its plan to hold the main interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.

Additional stimulus won’t necessarily spur economic growth while increasing the challenges for the Fed when it begins to withdraw the record accommodation, Lacker said in his speech.

“The Fed seems to be unable to improve real growth, despite striving mightily over the last few years,” Lacker said at the Richmond Fed’s Baltimore office, repeating a May 3 speech. “Further increases in the size of our balance sheet raise the risks associated with the ‘exit process’ when it’s time to withdraw stimulus.”

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