By Yali N’Diaye
SALISBURY, Md (MNI) – The maturity extension program decided by the
Federal Reserve at its latest meeting could well raise inflation rather
than growth, Richmond Federal Reserve Bank President Jeffrey Lacker said
Monday, justifying his opposition to the decision.
In addition, the strength of the recovery going forward will be
relatively independent from monetary policy decisions, he argued.
In remarks prepared for the Salisbury-Wicomico Economic
Development Annual Meeting, Lacker also said he was “unwilling to
support” the decision to maintain the size of the portfolio of agency
securities, doubting “whether the net effect on borrowing or growth will
be positive or negative.”
“More broadly,” he said, “it’s simply inappropriate, in my view,
for a central bank to attempt to channel credit toward some economic
sectors and away from others.”
Lacker, who is not a voting member of the FOMC this year, said the
effect of Operation Twist “is uncertain, but likely to be relatively
small.”
“My sense is that the main effect will be to raise inflation
somewhat rather than increase growth,” he continued.
And risks to inflation are already to the upside, he stressed,
urging vigilance.
While the worst of the monthly inflation readings are likely behind
us, Lacker expressed doubt “inflation will fall much below 2% for a
sustained period,” even as he expects growth to continue at a “modest”
pace over the near term — 2% to 3% — with unemployment likely to
remain “elevated.”
That said, he expects growth to “gradually strengthen” over the
next two years, although he did not “rule out a less robust path.”
He said factors likely to restrain growth, whether housing
inventories or potential tax hikes, “are nonmonetary and largely beyond
the power of the central bank to offset through easier monetary
conditions.”
Lacker also sought to reassure about the dissents at the latest
FOMC meeting, saying they are “no cause for alarm.”
** Market News International **
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