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More Fed Easing Could Do Harm Than Good, Hawks Say

Tuesday, 04 Oct 2011 11:45 AM

Two top Federal Reserve officials known for their hawkish views on inflation reiterated Monday their opposition to further Fed monetary policy easing, saying it would do more harm than good.

But the two, Richmond Fed President Jeffrey Lacker and Dallas Fed President Fisher, sketched somewhat different reasons for their views on the eve of Fed Chairman Ben Bernanke's appearance before Congress Tuesday.

Lacker said he was primarily concerned with the threat of inflation; Fisher said he was mainly worried that the policy would not work as advertised.

Bernanke was a chief supporter of the Fed's move last month to try to boost the faltering U.S. recovery by rebalancing the central bank's securities holdings in a bid to spur borrowing by pushing long-term rates down further.

The $400 billion program, dubbed "Operation Twist," drew three dissents, including Fisher's.

"We want to rekindle this economy; we don't want, on the other hand, to kindle inflationary embers. I don't think the latter is an issue right now," Fisher said in an interview on Bloomberg Radio.

He reiterated his view that U.S. politicians need to lay a sounder base for economic growth, or the Fed's easy monetary policy will simply be "pushing on a string."

Fisher told CNBC television he expected the U.S. economy would grow at an annual rate of under 2 percent over the remainder of the year, but he warned: "We could slip."

Speaking at his alma mater, the University of Wisconsin, Madison, Lacker said he was not worried about the specter of recession. Calling recent economic data "disappointing," he said it was nevertheless consistent with moderate economic growth.

And despite the high unemployment rate, which stood at 9.1 percent in August, the problems holding back the economy are largely beyond the Fed's control, he said.

Those problems include a mismatch between the skills workers have and those that employers want, and uncertainty over future regulation.

With inflation running above the Fed's target rate of 2 percent, the central bank should be careful of doing anything to exacerbate price rises, which can occur even when unemployment is so high, Lacker said.

The Fed's "twist" operation may do just that, he said.

"It is more likely to raise inflation than it is to measurably raise growth, that's my assessment," Lacker told reporters. Had he been a voter on the Fed's policy-setting panel this year, he added, "I would not have supported it."

Despite three dissents against looser monetary policy at each of the Fed's last two meetings, policy is being steered by a core group led by Bernanke.

Fisher and Lacker both said that uncertainty was restraining businesses, and that many of the economic problems were beyond the central bank's writ.

"We have a limited amount of ammunition," Fisher told CNBC, adding that there were plenty of studies that suggested the Fed's "Operation Twist" would not have that great an impact spurring stronger economic growth.

"I personally did not feel that the benefits ... outweighed the costs," he said. "I think we have done enough at this juncture."

Fisher, who has long argued that an uncertain regulatory and budget environment was damping business spirits, said he felt it would do little good to ease monetary policy because the level of interest rates was not the problem facing the economy.

Lacker concurred.

"There are impediments to growth that somewhat lower, longer-term interest rates will not be the antidote for," he told students.

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Two top Federal Reserve officials known for their hawkish views on inflation reiterated Monday their opposition to further Fed monetary policy easing, saying it would do more harm than good. But the two, Richmond Fed President Jeffrey Lacker and Dallas Fed President...
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Tuesday, 04 Oct 2011 11:45 AM
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