UPDATE 2-Fed’s Lacker says U.S. recovery looks sustainable

(Adds details from Q&A)

By Pedro Nicolaci da Costa

NORFOLK, Va., July 15 (BestGrowthStock) – The U.S. economy is
experiencing a moderate recovery that is unlikely to be
derailed by weak housing and persistent unemployment, Richmond
Federal Reserve Bank President Jeffrey Lacker said on
Thursday.

Speaking to a group of business executives, Lacker said
U.S. monetary policy was still at “emergency levels,” with
interest rates effectively at zero and central bank credit to
the banking system near its highest levels ever.

“Recognizing the right time to begin normalizing our
monetary policy settings is going to be hard, and reasonable
people can differ about this,” Lacker said in prepared
remarks.

“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.”

In response to the worst financial crisis in generations,
the Fed cut interest rates to the bone and undertook a host of
emergency measures, including more than $1.5 trillion in direct
purchases of Treasury and mortgage-related bonds.

After three quarters of steady growth, recent data has
suggested a softening in economic activity, sparking fears of a
renewed contraction or “double-dip” recession. Of particular
concern, unemployment has remained stubbornly high.

Against that backdrop, Lacker’s optimism sets him apart
from some of his colleagues. Minutes of the Fed’s June meeting,
released on Wednesday, showed a more glum assessment of the
nation’s growth prospects, and even some discussion of possible
steps that might need to be taken should the situation worsen.

But Lacker dismissed the notion that some slowing in the
pace of growth meant the recovery was in peril. He said a
double-dip recession is “quite unlikely,” though he did admit
that recent data raised the risks of a subpar economic
rebound.

“I would not be surprised to continue to see somewhat
choppy economic reports for a time,” said Lacker, who is not a
voter this year on the Fed’s policy-setting Federal Open Market
Committee. “This pattern is not at all inconsistent with
moderate growth.”

Inflation remains subdued, Lacker said, but stable price
expectations suggest it will pick up again in coming quarters.

Lacker noted that Europe’s debt problems might dampen U.S.
exports to the region. He said the situation there would likely
be resolved without major effects on the United States, but
said “more adverse outcomes are conceivable.”

Reiterating his calls for fiscal restraint, Lacker said
U.S. authorities should not test the bond market’s patience,
and that failure to rein in the budget deficit could lead
investors to shun Treasury debt, pushing yields higher.

UPDATE 2-Fed’s Lacker says U.S. recovery looks sustainable