Lacker says Fed shouldn't overdo stimulus

ROANOKE, Virginia (Reuters) - The Federal Reserve's latest monetary stimulus risks unwanted inflation and will not do much for economic growth, Richmond Fed President Jeffrey Lacker said on Monday.

Lacker, an inflation hawk who has dissented at every policy meeting this year, said a troubled U.S. labor market was being dampened by factors outside the control of Fed officials.

"The behavior of inflation is fundamentally attributable to the actions of the central bank, while growth and labor market conditions are affected by a wide variety of factors," he told a business conference in Virginia.

One such factor is uncertainty about the U.S. fiscal outlook Lacker said, adding that even if Congress comes to some sort of agreement to overcome the so-called "fiscal cliff," long-term problems will linger.

"Fiscal uncertainty will continue to restrain growth, I believe, until Washington adopts a long-run plan that restores fiscal balance at the federal level," he said.

The Fed last month announced a new bond-buying plan that will start off with $40 billion in mortgage debt purchases per month.

"Simply observing a high unemployment rate does not imply that the Fed's monetary policy is failing to comply with its congressional mandate, nor does it necessarily mean that monetary policy needs to do more to achieve its goals," Lacker added.

The U.S. jobless rate fell to 7.8 percent in September, a welcome sign that the economic recovery was beginning to gain traction. Lacker said the recent pattern of employment growth, with 146,000 jobs per month added on average in the third quarter, suggested a slowdown earlier in the year had been transitory.

U.S. economic growth slowed to a 1.3 percent annual rate in the second quarter, but a jump in retail sales for September suggested things were looking firmer in the third quarter.

In response to the financial crisis and severe recession of 2007-2009, the Fed cut official borrowing costs to effectively zero and bought some $2.3 trillion in Treasury and mortgage debt in a bid to keep long-term rates down and spur investment.

Lacker said the Fed's guidance that it will keep rates low until at least mid-2015 could send the wrong message.

"It could be misinterpreted as meaning that the Committee believes the economy will be weaker than people had thought. By itself, that could have a dampening effect on current activity, which is not what was intended," Lacker said.

"It also could be misinterpreted as suggesting a diminished commitment to keeping inflation at 2 percent," he said.

(Editing by Andrea Ricci)