Fed’s Lacker Says Weak Jobs Report Won’t Deter Taper Discussions

Federal Reserve Bank of Richmond President Jeffrey Lacker said the slump in job growth last month doesn’t signify a major shift in the labor market, and another reduction in bond purchases probably will be considered by the Fed this month.

Payrolls in December increased at the slowest pace in almost three years, indicating a pause in the recent labor market strength that may have reflected the effects of bad weather. The drop probably won’t keep policy makers from discussing another $10 billion cut in asset purchases, Lacker told reporters today after a speech in Raleigh, North Carolina.

“As a general principle, it’s wise not to overreact to one month’s employment report,” Lacker said. “Employment has been growing along a pretty steady trend this year. It takes a lot more than one labor-market report to be convincing that the trend has shifted, and in my experience one employment report rarely has an effect by itself on monetary policy.”

The Fed last month took the first step in curtailing its third round of asset purchases, which it announced in September 2012. The Federal Open Market Committee cut Treasury and mortgage-bond purchases to $75 billion a month from $85 billion, citing improved labor-market conditions.

“I would expect a similar reduction in pace to be discussed at the upcoming meeting,” Lacker said. “I expect the possibility of tapering to be discussed, that’s my forecast of what the meeting is going to hold, but we’ll have to wait and see when we get to the meeting how things look.”

Follows Revision

The 74,000 gain in payrolls, less than the most pessimistic projection in a Bloomberg survey, followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.

Fed Chairman Ben S. Bernanke said at a press conference after last month’s meeting that the committee may taper its buying by about $10 billion per gathering. The central bank probably will slow buying in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of 41 economists last month.

The FOMC convenes Jan. 28-29 in Washington. The purchases have inflated its balance sheet to $4.03 trillion.

Lacker dissented against continuing the purchases known as quantitative easing when he was a voter on the committee in 2012. He will have a vote again in 2015.

Lacker said earlier today in a speech to the Greater Raleigh Chamber of Commerce that economic growth this year will “subside” to 2 percent, while inflation will rise toward the Fed’s 2 percent goal over the next year or two.

“The pickup in growth late last year is certainly a welcome development, and it may well be a harbinger of stronger growth ahead,” Lacker said in the speech. While growth may be slower than in recent decades, “our economy is by no means stagnating; productivity is rising, incomes are growing and innovation is occurring.”

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