Lacker has identified several factors that are keeping a more rapid recovery from taking better hold: a large housing inventory overhang; retraining of workers is needed to find new employment in other sectors; a more cautious consumer; and delayed hiring and investment commitments from business due to uncertainty.
One surprise is that Lacker sees 2% GDP growth in 2013. He thinks that Fed policy measures of stimulus are less important to growth and employment than what has been believed.
Lacker said, “In my view, the supply of bank reserves is already large enough to support the economic recovery, and the benefits of further asset purchases are unlikely to be sizeable. … My assessment was that the costs associated with additional asset purchases outweighed the expected benefits.”
Later in the speech, Lacker said that he expects the first rate hikes to now actually begin in 2014 but it is highly contingent upon growth. Lacker even said that the bond buying initiatives could be scaled back sooner.
As a reminder, Jeff Lacker is the lone dissenting vote in the FOMC now. He cautions each time that he speaks that his view is the lone view of the FOMC’s voting members. His views might not even be aligned with the rest of the FOMC.
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