Fed Hawk Lacker to Retire Oct. 1, Successor Search Under Wayby
Lacker is among Fed’s most hawkish anti-inflation officials
Richmond Fed chief has dissented in favor of tighter policy
Federal Reserve Bank of Richmond President Jeffrey Lacker plans to retire Oct. 1, marking the exit of one of the U.S. central bank’s most steadfast inflation fighters at a time when the Fed is weighing how quickly to raise interest rates.
The Richmond Fed said Tuesday that a committee had been formed to find a successor for Lacker, who has led the regional Fed bank since 2004, and has engaged professional services firm Heidrick & Struggles to conduct the search. The head of the Richmond Fed will be a voting member of the policy-setting Federal Open Market Committee in 2018.
Lacker, 61, was a voice of restraint in the use of monetary policy and the central bank’s balance sheet as the Fed deployed extraordinary powers to combat the financial crisis, the worst recession since the Great Depression as well as a sluggish recovery.
“He was consistent in terms of wanting a narrow Fed that stuck to the business of ensuring price stability because that would be the Fed’s best contribution to society,” said Vincent Reinhart, chief economist at Standish Mellon Asset Management Co. LLC in Boston. “Jeff Lacker kept the faith.”
Lacker dissented frequently in favor of tighter policy when he was a voter on the FOMC, including at every meeting in 2012. During the financial crisis he warned about channeling credit to specific sectors of the economy, inflation risks and government rescues of troubled banks.
One of Lacker’s core doctrines was that an expansion of Fed credit to other sectors of the economy would create expectations of further support and thus further destabilize markets in the future as investors tested the perceived safety net.
“The striking feature of central bank lending during the recent turmoil is the extent to which it has extended well beyond the boundaries that previously were understood to constrain such lending,” Lacker said in a speech in November 2008.
Lacker wasn’t alone in those views. Former Fed Chairman Paul Volcker said the bailouts had taken the central bank to “the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices.”
Arguing for constraint when the entire financial system was at risk seemed overly cautious to some of his colleagues. Former Chairman Ben S. Bernanke noted that Lacker opposed a crisis-era innovation called the Term Securities Lending Facility, where the Fed loaned out its Treasury portfolio to primary dealers in exchange for mortgage-backed securities as collateral.
“Jeff Lacker spoke against the TSLF,” Bernanke wrote in his book, “The Courage to Act.”
Lacker will depart three years ahead of his mandatory retirement age of 65. He hasn’t lined up another job, according to Richmond Fed spokeswoman Laura Fortunato. “He does want to get back to writing and research,” she said.
The search for his successor, which gets under way as the Atlanta Fed is undertaking its own campaign to replace its president Dennis Lockhart, who retires Feb. 28, will be conducted nationally to “identify a broad, diverse and highly qualified candidate pool for this leadership role,” the Richmond Fed said in a statement on its website.
The Fed is under pressure to increase diversity among its leaders after criticism that it is dominated by white men. Janet Yellen, the first woman to chair the central bank, has said she’d like to see more diversity, though the Richmond Fed’s own board of directors will make the ultimate selection.
Jordan Haedtler, campaign manager for the Fed Up coalition, which has called for a more diverse leadership that includes more minorities and women, said the group will push for “a publicly inclusive and transparent process with the consideration of diverse candidates who will consider labor market conditions for all workers in weighing their decisions.”
Haedtler said Lacker was “always gracious” and toured low-income communities in Charlotte, North Carolina, with one of their member groups.
Given the Richmond Fed’s tradition of standing firm on price stability, “my guess is that the Richmond Fed will find a hawk,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte. “Part of this reflects the sentiment of businesses, residents and bankers located in this part of the country, who tend to take a more cautious view on what monetary policy can and cannot do,” he said.
Lacker admitted in speeches that his forecasts for the recovery were at times too optimistic. His warnings about inflation were defused as shocks hit the economy. When the Fed decided to go forward with a second round of quantitative easing in November 2010, Lacker raised concerns that it could make it hard to restrain inflation.
“This poses unacceptable risks to price stability and to our credibility,” he said, according to the meeting transcript. “I fear today’s decision and the expectations it encourages will come back to haunt us.”
The Fed’s preferred inflation measure, the personal consumption expenditures price index, did rise above its 2 percent target in 2011 and for part of 2012. It then fell below 2 percent in May that year and has never risen above that level since, partly due to a tumble in oil prices that began in 2014.