CHARLOTTE, North Carolina The U.S. government shutdown and other budget battles should not derail the Federal Reserve from beginning to pull back the pace of monetary stimulus soon, Richmond Fed President Jeffrey Lacker said.
Although Lacker said he did not want to preempt the Fed's December 17-18 decision by making any date-specific calls, he noted that he had opposed the latest round of bond purchases all along.
"I wanted to taper last October," he said. "In my mind, prospects for fiscal negotiations and the government shutdown did not warrant foregoing tapering."
The Fed surprised financial markets by maintaining its bond-purchase stimulus at a steady $85 billion per month in September. It did the same in October, although that decision was widely expected by markets given bets that a 16-day suspension of many government activities will hurt growth in the fourth quarter and make it harder to get a clear read of economic trends.
Lacker said the effects of bond purchases on the real economy were unclear, arguing the latest round of buying, already in excess of $1 trillion, had not made a major difference to U.S. economic growth, which continued to hover around 2 percent.
"Our ability to provide stimulus through balance sheet expansion is uncertain," Lacker said. "We're doing this under the supposition that if it helps is good but not on the notion that (the impact) on real economic activity is large."
Inflation remained "tame," Lacker said, but he expressed concern that the central bank's $3.8 trillion balance sheet could magnify the consequences of a policy mistake by the Fed, such as waiting too long to raise interest rates from current near-zero settings once growth picks up.
U.S. unemployment remains historically elevated at 7.2 percent, while other indicators of job market health have also been slow to heal.
But despite the Fed's dual mandate of low inflation and maximum employment, Lacker reiterated his view that the influence of the monetary authorities on job prospects was minimal.
"Our effects on labor market activity are modest," he said. "Our best contribution to economic growth is to keep inflation low and stable."
(Reporting by Pedro da Costa; Editing by Krista Hughes)