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FOMC Dissenter Throws Up His Hands

 June 22, 2012 09:27 AM


(By Kevin Donovan) Jeffrey Lacker to economy: You're on your own.

In stark contrast to Fed Chairman Ben Bernanke's insistence the central bank still has weapons it can wield, Lacker, president of the Federal Reserve Bank of Richmond, believes there's nothing more the Fed can do to float the economic ship.

Lacker was the lone dissenter on the Federal Open Market Committee this week when it approved extension of "Operation Twist," the Fed strategy of selling short-term securities and buying long-dated notes and bonds in an effort to keep long-term rates low.

In a statement, Lacker said: "I dissented on this decision because I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable.

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"While the outlook for economic growth has clearly weakened in recent weeks, the impediments to stronger growth appear to be beyond the capacity of monetary policy to offset.  Inflation is currently close to 2 percent, which the Committee has identified as its inflation goal.  A significant increase in inflation could threaten the Fed's credibility and make it more difficult to achieve the Committee's longer-run goals, including maximum employment.  Should a substantial and persistent fall in inflation emerge, monetary stimulus may be appropriate to ensure the return of inflation toward the Committee's 2 percent goal." Lacker's view is hardly representative of the FOMC.  He may be right, but that won't stop the Fed from trying, in our view.  If the June jobs report is as weak as May's, an intermeeting move by the FOMC to another round of quantitative easing can't be dismissed.

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