CHARLOTTE Dec 17 The U.S. Federal Reserve's
latest steps to goose an anemic recovery are unlikely to do much
to bring down unemployment and carry a "material" risk of
sparking inflation, one of the U.S. central bank's most hawkish
policymakers said on Monday.
Last week the Fed said it would buy $45 billion in
longer-term Treasuries each month, on top of its monthly
purchases of $40 billion in mortgage-backed securities, until it
sees a substantial improvement in the outlook for the U.S. labor
Although inflation has averaged near the Fed's 2 percent
goal over the last 20 years, and should stay a little below that
next year, Richmond Fed President Jeffrey Lacker said he worried
the latest Fed actions could endanger that record.
"I see material upside risks to inflation in 2014 and
beyond, given the current trajectory for monetary policy,"
Lacker said in remarks prepared for delivery to the Charlotte
Chamber of Commerce Annual Economic Outlook Conference. "The
effects on longer-term interest rates are uncertain and likely
quite small, and the potential to boost job creation seems quite
limited, given the fundamental impediments that appear to be
restraining growth now."
The U.S. economy will likely grow about 2 percent next year
and will "begin to firm" the following year, Lacker said. A
sudden rise in energy prices or an unexpected downturn in a
major U.S. trading partner could knock that pace down, he said.
On the other hand, if U.S. lawmakers make convincing
progress toward fiscal sustainability, a stronger-than expected
resurgence is "not inconceivable," he added, as relief releases
a "rush of pent-up spending."
In any event, Lacker said, monetary policy alone can do
little to improve economic growth or bring down unemployment,
currently at 7.7 percent.
"Our primary responsibility at the Federal Reserve is to
keep inflation low and stable," he said. "We do not really know
whether monetary policy can make a sustainable difference in
labor market outcomes, and we may be attempting to achieve more
rapid improvement than is feasible," he said.
Last week, in a bid to reassure markets it will leave
easy monetary policy in place until the recovery is much farther
along, the Fed vowed to keep interest rates low until
unemployment falls to at least 6.5 percent, as long as inflation
does not threaten to rise above 2.5 percent.
It was the first time the Fed had picked a specific marker
for unemployment to guide policy.
Lacker, who dissented at every Fed policy meeting this year,
repeated his opposition to that move, saying that setting a
threshold for unemployment is "inconsistent" with a balanced
approached to the Fed's duties.
"We need to be careful that in our zeal to promise future
stimulus, we do not constrain ourselves in ways that endanger
the price stability on which we've come to depend," he said.