Fed's Lacker says exit from bond-buying should be quick

BERLIN Sat Jul 27, 2013 6:01am EDT

Federal Reserve Bank of Richmond President Jeffrey Lacker testifies before the House Financial Services Committee hearing on ''Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts'' on Capitol Hill in Washington June 26, 2013. REUTERS/Yuri Gripas

Federal Reserve Bank of Richmond President Jeffrey Lacker testifies before the House Financial Services Committee hearing on ''Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts'' on Capitol Hill in Washington June 26, 2013.

Credit: Reuters/Yuri Gripas

BERLIN (Reuters) - The U.S. central bank must end its bond-buying program quickly and an end to the program was "in sight", a senior Federal Reserve official said in a German magazine on Saturday.

Fed Chairman Ben Bernanke jolted markets in late May with plans to ease back on stimulus efforts once the economy improves. The Fed is likely to reduce its monthly bond purchases later this year and stop them altogether by mid-2014, as long as the economic recovery unfolds as expected, Bernanke has said.

"We must make our exit from the bond-buying program quick," Richmond Fed President Jeffrey Lacker, one of the Fed's most fiscally conservative officials and a persistent critic of the latest round of bond buying, said in WirtschaftsWoche.

"An end to these bond purchases came into sight at the latest Fed meeting," said Lacker, who is not among the Fed policymakers who will vote on monetary policy this year.

Lacker pointed to relatively low inflation and said a faster-than-expected fall in the U.S. jobless rate was sufficient to start winding down the program.

"First of all we should end the monthly purchases of mortgage bonds as quickly as possible," Lacker said in the interview. It was not the central bank's role to give any sector preferential support, he said.

Lacker said the United States had made hardly any progress in cutting its debt and had instead only come up with temporary solutions for several months at a time.

He said he hoped the Fed's planned scaling back of bond purchases this year and rising interest rates would force the U.S. Congress to agree more quickly on reducing debt. "We need a sustainable solution and the sooner the better," he said.

Whoever takes the helm at the Fed when Bernanke's term as chairman ends in January 2014 must find a way to exit the bond-buying program without shocking the markets, Lacker said.

He said the quantitative easing program had done little to boost the economy, and the U.S. economy would grow by 2 percent this year and by no more than 2.25 percent next year - lower than the 2.8 percent in 2013 and 3 percent in 2014 forecast by other Fed policymakers - as consumers remain cautious.

Lacker said more needed to be done on drawing up rules to avoid future government bank rescues and said stress tests done in the United States were a step in the right direction.

(Reporting by Michelle Martin; Editing by Louise Ireland)

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Comments (2)
minipaws wrote:
Lacker, too little, too late. Retiree’s living on no interest for the last 4-5 years have had too eat into their savings. That can’t be fixed. Lacker – you’ve been a Slacker!

Jul 27, 2013 7:28am EDT  --  Report as abuse
reality-again wrote:
The questions people will be asking themselves once this is over are:
1. Everyone knew that after its initial stage, the Fed’s QE did very little to improve the US economy (a.k.a. the ‘real economy’). Why did they continue with it?
2. Everyone knew that starting back then, the only visible effect of the Fed’s QE was the bull market bubble on Wall Street. Why didn’t the Fed stop back then? Why did they take credit for it?
3. Everyone knew that the Fed’s QE would end sometime, and not in a very distant future. Why did investors ignore the increasing imminent danger?
4. Everyone knew that once the Fed’s QE ends, the stock market would crash. Why did investors keep ignoring this crucial information?
5. There was no black swan this time, and everything was in plain sight. Why did everyone choose to ignore it?

Jul 27, 2013 12:00pm EDT  --  Report as abuse
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