Richmond Fed's Lacker Rattles Dissenting Vote Saber Louder Against Stimulus

Jeffrey Lacker, President of the Richmond Federal Reserve Bank, has commented on his dissenting vote in a statement issued by the Richmond Fed this morning. Lacker is growing concerned that guidance is implying that there will be too much stimulus in the future. In short, he disagrees with how long the Federal Reserve expects to keep the easing measures in place.

The current path is for the Federal Reserve to continue purchasing more agency mortgage-backed securities to the tune of $40 billion per month. He has an issue with keeping the statement with a highly accommodative stance of monetary policy for a considerable period after the economic recovery strengthens and that exceptionally low Fed Fund levels will be warranted at least through mid-2015.

Lacker said, “I opposed continuing additional asset purchases. Further monetary stimulus now is unlikely to result in a discernible improvement in growth, but if it does, it’s also likely to cause an unwanted increase in inflation.” Growth has been modest and inflation has fluctuated around the Fed’s targeted 2% level. On jobs, Lacker said, “Unemployment does remain high by historical standards, but improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset. In such circumstances, further monetary stimulus runs the risk of raising inflation in a way that threatens the stability of inflation expectations.”

Another concern over telegraphing how long this stimulus will be is that it implies providing too much stimulus beyond the point at which rate increases will be required to keep inflation in check. Lacker also warned that it is inappropriate for the Fed to target borrowing rates for conforming home mortgages and tilting the flow of credit to one particular economic sector.

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Jon C. Ogg