Fed’s Lacker says hard to make case for more easing

By Pedro Nicolaci da Costa

COLLEGE PARK, Maryland (BestGrowthStock) – The U.S. economy is growing slowly but steadily, making it difficult to justify further monetary easing, Richmond Federal Reserve Bank President Jeffrey Lacker said on Wednesday.

His comments run against a chorus of policymakers from the central bank who have all but signaled that another round of bond purchases aimed at stimulating growth is very likely at the Fed’s November meeting.

“It would be a hard case to make,” Lacker, an inflation hawk, told reporters after a Richmond-Fed sponsored workshop for journalists on the economy.

In response to the worst recession in more than 70 years, the Fed lowered interest rates to almost zero and bought some $1.7 billion in Treasury and mortgage-linked bonds.

But with unemployment still running at 9.6 percent and inflation tame, Fed officials appear keen to take further action to thwart the risk of a downward price spiral driven by prolonged economic sluggishness.

Markets have all but priced in another round of bond purchases, and some investors have become concerned about a bubble in emerging markets, which have benefited from huge capital inflows amid low rates in advanced economies.

Lacker, who reiterated his forecast for growth to average about 2 percent in the second half of 2010, said that the spending patterns of consumers is consistent with a sustainable, if weak, recovery.

Lacker said recent turmoil in the housing market related to possible foreclosure fraud did not present a major risk to economic activity for now.

“It’s not clear whether that should change our assessment about the integrity of the mortgage process and it’s not clear that it’s going to mean a dramatically slowed foreclosure process,” Lacker said. “Until it does I don’t think it has macroeconomic impacts.”

Asked about the need for an explicit inflation target, which has been debated recently as a way to clarify the goals of the Fed’s unconventional policies to the broader public, Lacker said he favored aiming for an inflation rate of 1.5 percent.

However, he damped speculation that the Fed might refer directly to such a target in one of its post-meeting policy statements, saying that these pronouncements were too fleeting to give an inflation target its proper weight.

Lacker indicated he had some suspicions about a bolder approach being discussed, known as price-level targeting. Under this method, the Fed would temporarily shoot for higher inflation in order to make up for past underperformance.

Lacker argued that central bank intentions were not so easily communicated to the public and that the balancing act of reining in expectations of higher prices would be tough to pull off.

Asked about the decline in the dollar, Lacker said the currency market appeared to be reacting to differing expectations about policies in various countries.

(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)

Fed’s Lacker says hard to make case for more easing