By Steven K. Beckner
CHARLOTTE, North Carolina (MNI) – Richmond Federal Reserve Bank
President Jeffrey Lacker expressed concern Monday that the Fed could
become tempted to try to reduce joblessness faster than it is capable of
doing and fuelling inflation.
Lacker, talking to reporters following a speech to the Charlotte
Chamber of Commerce, echoed Fed Chairman Ben Bernanke in saying he is
“100% confident” that the Fed can tighten monetary policy in time to
avoid accelerating inflation, but said the timing is apt to prove
“tricky.”
Contrary to what Bernanke said in an interview aired Sunday night
by CBS, Lacker said he believes the recovery is “self-sustaining,”
albeit sluggish. Bernanke had said that the economy is “on the border”
of not having a self-sustaining recovery.
In earlier prepared remarks, Lacker warned against “steering
monetary policy off course” by “targeting unemployment.”
Following up, MNI asked him whether he thinks a majority of the
Fed’s policymaking Federal Open Market Committee is putting too much
emphasis on the full employment side of its “dual mandate” at the
expense of its price stability mandate.
“I don’t think there’s too much emphasis of jobs just yet,” replied
Lacker, who is not a current FOMC voter. “But at this point in the
recovery and going forward the next couple of years it’s a risk that we
might get drawn into trying to push unemployment down faster than it’s
really capable of falling.”
Asked whether he favors a change in the Fed’s statutory mandate,
Lacker noted that his predecessors at the Richmond Fed “have favored a
price stability mandate from Congress.”
And he said, “I think it would be useful in clarifying our
objective in the conduct of policy.”
“Having said that, the fact that we have three mandates — the
other one that people don’t mention much is moderate long-term interest
rates — means that we have essentially discretion on which one to
emphasize when,” Lacker continued, “and that didn’t keep us from
focusing on price stability over the last 20 years and so while I think
a price stability mandate would be beneficial I don’t think it’s
necessary and I don’t think what we have in the law now is impeding us
terribly.”
Bernanke and others have said the Fed has the ability to tighten
policy to head off accelerating inflation, but critics have questioned
whether it will have the will to do so in a timely way.
MNI asked Lacker whether he is confident the FOMC will tighten
sufficiently rapidly when the time comes.
He replied that, “We have interest rates very low and we’ve made
bank reserves very large.” So he said “withdrawing monetary stimulus is
going to involve raising interest rates on
reserves and also reducing reserves.”
Lacker said he has “100% confidence that we can raise interest
rates and reduce stimulus by reducing reserves.”
But he added, “getting the timing right is tricky” and he said the
Fed’s record in this regard is mixed. In 1994, he recalled, the Fed
“moved preemptively” against inflation and had “a success.”
He said that experience “has some good lessons for us.
But he noted that “in the late 70s we got berhind the curve” and
“the same thing in the 60s.”
“I have 100% confidicne we can withdraw monetary stimulus, but
getting the timing right is a little bit tricky,” he repeated.
Asked whether the Fed’s new round of quantitativew easing is
working, Lacker said it is “too early to tell.”
Though a critic of Q.E., Lacker denied the Fed is doing it to help
finance the federal budget deficit earlier in response to an audience
question.
“It is not our intention is to engage in monetary financing of the
deficit,” he said, adding that QE2 is focused solely on creating more
growth supportive monetary conditions.
Lacker stressed that the U.S. fiscal problem “going forward is a
significant one” and said “something is going to have to change.”
“The fiscal trajectory we’re on is just not going to happen. The
question is what’s going to adjust” and “whether it will be done
smoothly and graciously or more discontinuosly.”
In other comments, Lacker said the European debt crisis, unless it
intensifies and hurts European growth more than expected, should have a
“manageable” and “minor” impact on the U.S. economy.
Lacker was a relative optimist on a panel in which he was
participating, predicting GDP growth of more than 3% next year. Other
panelists, corporate chieftains, were almost uniformly negative.
Dan DiMicco, chief executive officer of Nucor Corporation, the
nation’s biggest steel producer, predicted “more of the same” next year
in terms of sluggish growth and high unemployment. He said his company’s
capacity utilization rebounded from a record low 35% to 76% in
September, but said it has “since sunk down to about 67% to 68%.”
“Things are better but are still way below historic norms,” said
DiMicco.
He added that the U.S. needs to create 25 to 30 million jobs over
the next five to seven years or at least 300,000 jobs per month. But he
said that’s not happening because “business is scared to hire people”
because firms are “certain the wrong things are being done in
Washington.”
Wells-Fargo senior executive vice president David Carroll said
there is “a long way to go before growth returns to our consciousness.”
He said Americans “need a period of confidence and calm,” but instead
“negative sentiment is paralyzing people.”
Consumer, investor and business uncertainty about tax and
regulatory policy is “not just the normal grousing about big
government,” he said.
Carroll predicted a 100 basis point jump in Treasury bond yields
next year and said “it won’t be gradual … . Treasures are a bet on the
value of the dollar, and it’s very hard to be bullish.”
Duke Energy CEO James Rogers predicted no more than 2.5% growth
next year and said, “we have a very hard, long ride ahead … . The
sooner we recognize it the faster we will reach recovery … . We’ve got
to recongize it … We’ve got to come to grips with it.”
Rogers predicted sales won’t be back to their 2007 levels until
2015.
Bank of America CEO Brian Moynihan agreed the economy’s
recovery is “going to be a long steady pull” with the economy not
getting back to norma for years.
** Market News International **
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