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Lacker Says 1.5% Inflation in Line With Fed Mandate

Friday, 24 Sep 2010 03:11 PM

(Updates with comments on economy in fourth paragraph.)

Sept. 24 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said inflation of about 1.5 percent is consistent with the central bank’s mandate for stable prices, and he doesn’t see a risk of deflation.

Lacker, speaking to reporters after a speech in Frankfort, Kentucky, said today the record from the 1950s and 1960s shows inflation can run between 1 percent and 1.5 percent for “quite some time” without causing deflation, or a persistent decline in prices.

Fed policy makers said in a Sept. 21 statement that they’re prepared to ease monetary policy if needed and signaled they consider inflation to be too low. While Lacker declined to comment about the central bank’s stance, his remarks indicate he may differ with the assessment on inflation. Lacker dissented four times in 2006 in favor of higher interest rates.

“We need to be modest in our expectations for real growth and the labor market now,” Lacker said. “The economy is facing real headwinds that are important and fundamental and are going to take a little time to resolve.”

Lacker’s inflation preference may be at the low end among Fed officials, who indicated at their June meeting that they would like long-run price increases ranging from about 1.5 percent to 2 percent. That’s based on the Commerce Department’s personal consumption expenditures price index. The index rose 1.5 percent in the 12 months ended July. Excluding food and energy costs, it rose 1.4 percent.

Reinvesting Proceeds

The Federal Open Market Committee this week retained its policy, begun last month, of reinvesting proceeds from the repayment of mortgage debt into long-term Treasuries. The committee also kept the benchmark federal funds rate in a range of zero to 0.25 percent, where it’s been since December 2008, and reiterated that the rate will stay “exceptionally low” for an “extended period.”

The FOMC said in its Sept. 21 statement that economic and job growth have “slowed in recent months” and that policy makers expect growth to be “modest in the near term.”

Asked how effective extra monetary easing would be, Lacker said he stands by his previous position this month that “the fundamental factors that are inhibiting growth right now probably are beyond our ability to offset.”

Lacker, 54, doesn’t vote on FOMC interest-rate decisions this year. He dissented from an FOMC decision in January 2009, indicating a preference to inject money into the banking system through purchases of U.S. Treasury securities instead of more narrowly through housing debt.

Economists surveyed by Bloomberg News this month are projecting U.S. growth this year of 2.7 percent and 2011 growth of 2.5 percent, based on the median estimates of 59 and 58 analysts, respectively. That compares with the median forecast in March for 3 percent this year and next.

Lacker said his forecasts for growth are in line with economists’ estimates of about 2 percent for the second half and a little more than 3 percent in 2011.

--Editors: James Tyson, Kevin Costelloe

To contact the reporter on this story: Scott Lanman in Frankfort at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

© Copyright 2017 Bloomberg News. All rights reserved.

   
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(Updates with comments on economy in fourth paragraph.) Sept. 24 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said inflation of about 1.5 percent is consistent with the central bank’s mandate for stable prices, and he doesn’t see a risk of...
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2010-11-24
Friday, 24 Sep 2010 03:11 PM
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