Fed’s Lacker Says Central Banks Have Set ‘Unhealthy’ Precedents

Federal Reserve Bank of Richmond President Jeffrey Lacker said central bankers are setting “unhealthy” precedents by expanding their involvement in credit markets.

“I’m a skeptic,” Lacker, 57, said today during a panel discussion at the National Association for Business Economics 2013 policy conference in Washington. “There is room for doubt on this bold new limit-busting that central banks have done.”

The Richmond Fed president said the “scale and scope of credit-market interventions has set precedents” that will change the relationship between financial markets, financial institutions, the government and central banks. “It was unhealthy coming into the crisis, and I think it is unhealthy coming out of the crisis,” he said.

U.S. central bankers launched a third round of quantitative easing in September, announcing $40 billion of monthly agency mortgage-backed securities purchases. The program was expanded in December with $45 billion of monthly purchases of Treasury notes.

Fed Chairman Ben S. Bernanke and Vice Chairman Janet Yellen in speeches this month supported the central bank’s efforts to keep long-term interest rates low and hold short-term rates near zero.

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