Jeffrey Lacker, the Fed’s Lone Inflation Hawk

October 26th, 2012 by

The latest policy announcement by the Fed’s Open Market Committee had one dissenting voice – Jeffrey Lacker, president of the Richmond Federal Reserve. Lacker has resisted the Fed’s stimulus policy at all seven meetings this year, so the surprise announcement that the Fed will keep interest rates near zero even after the recovery starts was of course something he opposed. Chairman Ben Bernanke said that keeping interest rates abnormally low during the early stages of recovery will give businesses confidence to invest during turbulent times.

The FOMC at the October meeting pledged to continue buying mortgage-backed bonds to the tune of $143 billion worth by the end of the year. The Fed is already buying long term Treasury notes at the rate of $45 billion a month as part of its quantitative easing policy. Lacker believes that what is ailing the economy is beyond the ability of even extraordinary measures in monetary policy to correct.

“Improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset,”

-Jeffery Lacker

What really set off inflation alarm bells for Lacker was the announcement that the Fed plans to keep on the present course of bond-buying and super low interest rates for nearly three years Рto mid-2015.  Lacker believes that such measures for such a long time will fuel inflation beyond acceptable levels.

What do you think? We’re interested in hearing from you! Will Bernanke’s plan eventually work, or is Lacker correct in saying that what ills the economy is beyond the ability of the Fed to fix?

-by David  Peterson

2 thoughts on “Jeffrey Lacker, the Fed’s Lone Inflation Hawk

  1. Tim

    Interest rates can’t go up (until they do). The Fed can’t let them. I believe it was Financial Sense that asserted every 1% rise in interest rates will equal $200 billion tacked on to the US national deficit, as debt service cost goes up. So, interest rates returning to a “normal” 5% would mean a 1 trillion increase in the debt – budget busting. If we return to the 15+ percent of the seventies, that’s 3 trillion tacked on to the deficit. Each year.

    We can’t support that, the Fed knows it, so they’ll keep interest rates down for as long as they can, with whatever plausible justification they can come up with at the time. Our parasitic cartel of private banks doesn’t want to kill its host until it can find a new one to feed on.

  2. GainesvilleCoins

    And if the Fed (and other central banks) keep interest rates abnormally low, the inflation rocket that will fuel will devalue the existing debt. How long will they be able to keep it up before we end up with a global Weimar economy? Can the U.S. government pay off the debt with devalued currency fast enough to allow interest rates to be reigned in in time?

    Hope we don’t find the answers to these questions the hard way.

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