By Alister Bull
RICHMOND, Va. May 3 Stronger U.S. job creation
in April reinforces the argument to scale back Federal Reserve
bond purchases, one of the central bank's most hawkish
policy-makers said on Friday, after better than expected data
eased concern the U.S. economy had stumbled.
"I don't think there is any question...that we've seen
substantial improvement in the labor market outlook over the
last 6 months," said Jeffrey Lacker, president of the Federal
Reserve Bank of Richmond.
Non-farm payrolls rose 165,000 last month and the
unemployment rate fell to 7.5 percent, a four-year low, from 7.6
percent, the Labor Department said earlier on Friday. In
addition, hiring was much stronger than previously thought in
the prior two months.
The Fed voted on Wednesday to keep buying bonds at a monthly
pace of $85 billion, and to maintain this so called quantitative
easing until it spotted the substantial improvement that Lacker,
who opposes the program, said was now evident.
Noting that employment creation over the last six months had
averaged around 200,000 a month, he said this should trump a
weak employment reading in March which, in any case, had now
been revised higher.
"It is clear that the labor market outlook isn't worse, and
if anything, it is substantially better, and I think you ought
to evaluate the likelihood of us reducing the pace of asset
purchases accordingly," he told the Richmond chapter of the Risk
Lacker is one of the most hawkish, or anti-inflation minded,
officials on the Fed's 19-member policy-setting committee. When
he was a voting member of the committee last year, he dissented
at every meeting in opposition to its aggressive policy actions.
According to a Reuters poll released last month, most
analysts expect the Fed to keep buying bonds into next year.
It has tripled the size of its balance sheet since it began
this program in response to a severe 2007-2009 recession, while
also holding interest rates near zero since late 2008.
The U.S. economy grew at a 2.5 percent annualized pace in
the first quarter, up from 0.4 percent during the previous three
months, and Lacker said this performance had been pretty
impressive, given the headwinds confronting growth.
These included a recession in Europe and the uncertainty
created by a large number of new regulations that U.S. firms
must adopt, as well as a fiscal outlook which "is a mess".
Weaker readings from some forward-looking indicators have
hinted the economy might suffer a 'spring swoon'. Lacker
acknowledged that manufacturing might have lost some steam. But
he played down recent low readings in inflation that some have
pointed to as a sign the nation risks a damaging deflation.
"The recent behavior of inflation has been heartening," he
said. "Measures of inflation remain with ranges consistent with
price stability, and the low current readings on some inflation
indices are likely to be transitory."
The Fed's preferred gauge of price pressures faced by
consumers, the pce price index, slowed to 1.0 percent in March
versus a year ago.
That was its lowest rate in 3-1/2 years and well beneath the
Fed's goal for 2 percent, spurring speculation in financial
markets that the central bank might consider increasing its bond
purchase program from a current rate of $85 billion a month.
In fact, the Fed spelled out in a statement issued after its
policy meeting ended on Wednesday that it could increase the
pace of bond buying if warranted by the outlook for prices and
employment, although it did not alter its language on inflation.
Lacker noted that the PCE had averaged 1.2 percent over the
last four quarters and acknowledged that was "on the low side of
our recent experience." But he said that he expected inflation
to edge back toward 2 percent by next year.