LYNCHBURG, Va., June 26 The Fed's policy of
reverse repurchase agreements should only be used as a temporary
fix and not a part of a long-term strategy, a top Fed official
said on Thursday.
"I don't see a need for overnight reverse repurchase
agreements on an ongoing basis as an active part of implementing
monetary policy," Richmond Federal Reserve Bank President
Jeffrey Lacker told reporters after a speech in Lynchburg,
Lacker said the so-called reverse repo program was best used
as an insurance policy or backstop.
That view goes counter to some Fed officials who believe the
reverse repo could ultimately supersede the Federal funds rate
as the central bank's primary policy tool.
Lacker also said that he sees inflation firming this year,
and that data gathered in the last few months was not the
"noise" that some think, underscoring his hawkish view that
inflation threats are gaining traction.
He would not say exactly when he expects interest rates to
lift off, only saying that a variety of economic factors will
weigh on that decision, likely in the middle of next year.
Lacker said he sees economic growth in second half of 2014 at
2.25 percent to 2.5 percent.
The New York Federal Reserve Bank has been testing the
reverse repo facility since September as a way to help control
short-term interest rates, and has seen strong demand from money
market funds and other bidders.
In reverse repos, the Fed temporarily drains cash from the
financial system by borrowing funds overnight from banks, large
money market mutual funds and others, offering them Treasury
securities as collateral. Banks and the funds are currently
receiving 5 basis points, or 0.05 percent, for the overnight
loan, up from 1 basis point in September.
(Reporting by Michael Flaherty; Editing by Paul Simao)