By Brai Odion-Esene

COLLEGE PARK, Md. (MNI) – Richmond Federal Reserve President
Jeffrey Lacker said Monday evening that if conditions in the U.S.
economy remain as they are, it will be hard for those on the Federal
Open Market Committee who support additional monetary stimulus to make
their case at the November 2 meeting.

Speaking to reporters at the close of a financial journalism
workshop, Lacker said if growth comes in as expected, it would be, for
him, a hard case to make that more quantitative easing is warranted. “It
is how I feel now, but I’ll take an open mind into the meeting,” he
added.

According to the Federal Reserve’s Beige Book, a summary of
economic conditions in the 12 Fed districts, economic activity in
the U.S. continues to expand at a modest pace and “it’s about what I
expected,” Lacker said.

He expects a growth rate of 2% in the second half of 2010, saying,
“I’m a little worried that growth is pretty low.”

Lacker added that going forward, levels of business investment in
equipment and software will be a key indicator of macroeconomic growth.
“If that fell of dramatically, I’d be extremely concerned,” he said.

If business spending remains “pretty robust,” he continued, then
prospects for growth are good.

Commenting on a stubbornly high unemployment rate in the U.S. and
its possible impact on growth, Lacker noted that consumers have expanded
their spending in line with growth in income. “And that suggests that
growth is quite sustainable at least at the current pace for the near
future,” he said.

The Richmond Fed president also said he is not expecting the
unemployment rate to fall “dramatically” over the course of the next
year but it will “edge down.”

He went on to warn “that if the pace of growth doesn’t pick up, the
expansion in employment will fall short of the expansion in the working
age population,” adding “and that’s what is likely to keep the
unemployment rate from falling rapidly.”

“Just what levers we can pull, just what actions we can take to
increase growth are far less certain in the current environment,” Lacker
added.

Asked by Market News International if he supports calls by Chicago
Fed President Charles Evans for a more explicit inflation target, Lacker
said this is something he has always advocated.

“My first choice would be 1.5%” for headline PCE, he said. Lacker
added, however, that he is not in favor of price level targeting.

And what of the impact QE2 expectations are having on the value of
the U.S. dollar? Lacker said the currency seems to be responding to
shifting expectations about policy in different countries.

The value of the dollar right now is favorable for U.S.
manufacturing exports, he noted.

Asked to comment on the ongoing foreclosure controversy in the
U.S., Lacker said he does not see it as a macroeconomic risk at this
point. Nothing uncovered to date will impact the integrity of the
mortgage process or slowdown foreclosures significantly, he said.

“Until it does, I don’t think it has macroeconomic impacts or
implications,” he said.

Lacker was also pressed on if he sees a conflict of interest
between the Fed’s role as a regulator and as a holder of mortgage-backed
securities.

He responded that he does not see a conflict, arguing that the Fed
conducts itself in both roles with the ultimate goal of ensuring a safe
and sound financial system.

Federal Reserve officials, like the Dallas Fed’s Richard Fisher,
have repeatedly highlighted the negative impact that uncertainty
surrounding fiscal and regulatory policy is having on business spending
and hiring.

Lacker said while initially skeptical, he now believes there is
something “substantial” to those claims, and sees it as “plausible” that
uncertainty is a significant restraining factor on growth in the United
States.

** Market News International Washington Bureau: 202-371-2121 **

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