I’ve been hoping that the confirmation of Barack Obama’s appointees to the Federal Reserve Board of Governors might tilt the balance on the Open Market Committee in favor of more monetary expansion. Meanwhile, at least one regional Fed president seems to be throwing his weight behind the reverse idea, with growth sluggish, unemployment over nine percent, and inflation below-target and falling the Fed should worry about inflation and raise rates:
[Federal Reserve Bank of Richmond President Jeffrey] Lacker believes, like many other Fed officials, that the economy doesn’t yet need fresh support from the Fed. He put very low odds the Fed will come back into the market to buy mortgages, saying “I don’t think this is the time to shift gears again” and “we are a long way a ways from needing to think about starting up asset purchases again.”
Rate hikes aren’t imminent, but they are getting closer, the official said. “I have been saying that I am waiting for the time when growth is strong enough and well enough established that it will be clear we need higher rates,” Lacker said. “I don’t think we are there yet,” although he also said “we are getting to a time period where it’s going to be a more and more cogent question” as to when tighter policy will be required.
The time to tighten policy would be when the price level catches up to its long-term trend path. For now, we’re way below trend and losing ground. The Fed should be looking to loosen policy, not tighten, especially because it’s not at all clear that money really is loose right now.
Fed Governor Elizabeth Duke seems to agree with Lacker. I note that Lacker isn’t sitting on the Open Market Committee this year so what he thinks arguably doesn’t matter very much. On the other hand, Thomas Hoenig from Kansas City who agrees with him is on the FOMC. The whole business of regional Fed presidents and rotating seats is, I think, badly in need of reform, but that’s another story.