Federal Reserve Bank of Richmond President Jeffrey Lacker, who doesn’t vote on monetary policy this year, said the Fed would still be boosting stimulus even after reducing its $85 billion in monthly bond purchases.
“I don’t view tapering as cutting back on stimulus,” Lacker said today in response to audience questions after a speech in Newport News, Virginia. The Fed is merely “reducing the pace at which we are adding stimulus.”
The Federal Open Market Committee is considering whether the U.S. labor market has improved enough to warrant scaling back the monthly purchase of $45 billion in Treasuries and $40 billion of mortgage-backed securities. It should dial down its buying of mortgage bonds before Treasuries so as not to favor a specific part of the economy, Lacker said to reporters today after his speech at Christopher Newport University.
If “we begin reducing purchases all the reduction should come out of the MBS,” Lacker said to reporters. He voted against stimulus at every FOMC meeting last year.
“I just don’t think it’s appropriate for us to be channeling credit to one particular market,” he said.
Lacker said he doesn’t expect a significant pickup in the economic expansion. Gross domestic product rose at a 2.5 percent annualized rate in the second quarter, up from an initial estimate of 1.7 percent, the Commerce Department said today.
“I just don’t see where an acceleration of growth is going to come from,” he said. “I think growth is going to average about 2 percent going forward.”
The labor market has shown sufficient improvement to meet the FOMC’s criteria for a reduction in stimulus, Lacker said. The committee began its third round of so-called quantitative easing in September with the mortgage bond purchases, and added the Treasury purchases in December. The committee has pledged since then to continue the purchases until the labor market has improved substantially.
“We’ve seen a substantial improvement in labor market conditions since last September when we originated the program,” Lacker said to reporters. “A good case can be made that that condition has been met.”
Payroll growth during the past six months has averaged 200,000, compared with a 141,000 average in the six months before September, when the FOMC announced a third round of bond buying. Also, jobless claims fell to 320,000 in the week ended Aug. 10, the least since October 2007.
The FOMC next month will probably reduce its bond buying, according to 65 percent of economists surveyed by Bloomberg.
The committee’s first step may be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13. The Fed will probably end the buying by mid-2014, they said.
Lacker, 57, dissented on FOMC decisions at all eight meetings last year and doesn’t vote again until 2015.