Tags: Fed | Lacker | Economic | Expansion

Fed's Lacker: Economic Expansion 'Disappointedly' Slow

Wednesday, 29 August 2012 12:19 PM

The U.S. economy is improving at a "disappointedly slow pace" although the longer-term outlook for the economy looks good, said Federal Reserve Bank of Richmond President Jeffrey Lacker.

More monetary-stimulus measures won't help, as the Fed has already slashed interest rates enough and pumped liquidity into the system to spur recovery.

"The economy is expanding but it's been expanding at a disappointedly slow pace," Lacker told American Public Media's Marketplace.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

Housing continues to weigh on recovery, while uncertainty surrounding the fiscal health of the country is thwarting businesses from expanding and adding payrolls.

At the end of the year, several tax breaks are scheduled to expire while automatic cuts to government spending kick in, a combination known as a "fiscal cliff" that could send the country sliding into recession if left unchecked by Congress.

Still, things look better in the long term.

"It may take many years, it may just be a year or two away," Lacker said. "I certainly hope it's sooner rather than later, but I'm confident that the long-term prospects for our economy are good. The fundamentals are there, the innovation, the flexibility and resilience of our markets; the educated work force that we have. Tricky is unleashing all that potential."

The economy grew 1.7 percent in the second quarter, according to revised gross domestic product estimates released by the Commerce Department, up from an initial reading of 1.5 percent.

While an improvement, the number isn't strong enough to quash ongoing talk the Fed is planning to stimulate the economy with monetary-easing measures to keep prices firm and encourage hiring.

The Fed adheres to a dual mandate to keep prices stable and unemployment rates optimal, though Lacker said the U.S. central bank should focus more on pricing.

"The Fed can't control unemployment," he said. "Unemployment is high now relative to its long-run averages, but the economy's been hit some really tremendously powerful shocks over the last couple of years, and that's what's keeping unemployment high, it's just been difficult to bring down. We need to be patient. It's a long, costly process that we're going through."

Meanwhile, the second-quarter growth rate continues to fuel talk the Fed will likely roll out a new round of quantitative easing, under which the Fed buys bonds like Treasury holdings or mortgage-backed securities from banks, pumping the economy full of liquidity to spur recovery.

As a side effect to such policy, the dollar weakens, stocks rise and inflationary pressures increase, and Lacker said the upside of growth and job creation would be minimal.

"I think the effect on growth is likely to be small and temporary," Lacker said.

Yet expect intervention anyway, as growth rates need to expand 2 to 2.5 percent a quarter to hold already high unemployment rates steady, economists say.

"It shows slightly better government spending and consumer spending but overall the data suggest the economy stays in slow growth mode and is not likely to change," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York, according to Reuters.

"This certainly strengthens the hands of the Fed to aid the economy."

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Wednesday, 29 August 2012 12:19 PM
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