By Bill Cresenzo

NORFOLK, Va. (MNI) – It is “quite unlikely” that the Federal
Reserve will further ease monetary policy to help along the sluggish
economic recovery, even though economic growth has been slower than
expected, Richmond Federal Reserve President Jeffrey Lacker said
Thursday night.

“I still expect growth (to be) about three percent for the whole
year,” Lacker said, “Thats a bit of a markdown from a couple of months
ago.”

Lacker’s comments were made while speaking to reporters following a
speech to business executives in Norfolk, Virginia.

Lacker also said it could take up for two years for the Fed to call
the recession over. However, he added that it is unlikely that a
double-dip recession will occur anytime soon.

On a positive note, Lacker told the audience that he believes
retail sales have not been as soft as the “headline numbers” indicate.

He also said the housing crisis seems to have bottomed out, while
assuring that despite the re-emergence of uncertainty in the financial
markets, a “sudden retreat” by foreign investors from U.S. assets is
unlikely.

In his prepared remarks, Lacker spoke of the difficulty that the
Federal Reserve will face in determining the proper time to begin
tightening monetary policy, with officials wary of hiking rates too soon
and threatening the fragile economic recovery.

“The difficulty, of course, is that no one wants to tighten policy
prematurely and needlessly dampen the recovery,” Lacker said. “So
recognizing the right time to begin normalizing our monetary policy
settings is going to be hard, and reasonable people can differ about
this.

“For my part, I will be looking for the time at which economic
growth is strong enough and well enough established to warrant raising
our policy rate.”

Lacker also warned in his remarks about the risks associated with
current U.S. fiscal policy, a point he reiterated during the audience
question and answer session.

He described the path that the U.S. has been on as “unsustainable,”
calling attempts by lawmakers to address the budget deficit a contest
between “forces of stalemate and forces of enlightenment.”

On a day when the U.S. Senate passed a bill that will overhaul the
financial regulatory system, Lacker said that an “orderly wind-down”
mechanism for failing financial institutions is needed, and that the
bill would help tackle the “tremendous problem” of ‘too big to fail’
banks.

** Market News International **

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