UPDATE 1-Fed’s Lacker says hard to make case for more easing

By Pedro Nicolaci da Costa

COLLEGE PARK, Md., Oct 20 (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.

(For more stories on Fed policy go to [FED/AHEAD]))
(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth
Barry)

UPDATE 1-Fed’s Lacker says hard to make case for more easing