BALTIMORE The Federal Reserve could reduce the pace of its bond-buying stimulus despite a government shutdown that is preventing the release of key economic data, Richmond Fed President Jeffrey Lacker said on Friday.
He was speaking even as the Labor Department failed to release its monthly jobs report, the most widely watched global indicator, because of cost cuts related to the budget impasse and shuttering of government.
"We won't be flying blind," Lacker said, pointing to other types of economic reports. "It doesn't help. It'll slow us down a bit."
Lacker said he expects the overall impact of the shutdown to be "transitory," and therefore not create a major drag on economic growth.
"If you had told me a two-week shutdown was coming I would have favored tapering in September anyway," he told reporters after a speech to the Council for Economic Education.
He said the labor market has already met the conditions of "substantial improvement" that the Fed linked to an eventual retreat in its bond-buying stimulus, currently set at $85 billion per month. The Fed surprised markets last month when it decided to hold off on cutting back on that pace of purchases.
The U.S. economy expanded 2.5 percent in the second quarter but growth is expected to be slower in the second half of 2013.
Lacker said even if the Fed wanted to, it lacks the power to counter the economic drag from the budget standoff.
"Federal Reserve policies cannot necessarily counteract the effects of fiscal policy uncertainty, declining productivity growth or structural changes in the labor market - all of which appear to be playing a role to some degree," Lacker said.
Lacker is an inflation hawk who has been skeptical of the central bank's unconventional policies. While he focused his remarks mostly on financial literacy and education, his overall message remained the same.
"As we've seen during the recovery from the Great Recession, there are significant limits to the power of monetary policy to affect the real economy," he said.
He criticized the central bank for offering forward guidance when policymakers are not always certain they can follow through.
(Reporting By Pedro Nicolaci da Costa; Editing by Andrea Ricci)