Richmond Federal Reserve President Richard Lacker has not gone along with Chairman Ben Bernanke all year.
In Lacker's view, the Fed has already done its part to stimulate the moribund economy. He argues that the fundamentals of the economy are solid and that printing money to buy bonds needlessly risks runaway inflation.
However, his colleagues are not leaving an inept Congress to craft sane fiscal policies that might safeguard the recovery.
On Wednesday, the Fed announced a new bond-buying program worth $45 billion per month of longer-term Treasurys. This is addition to the $40 billion per month in mortgage-backed securities that the Fed has already committed to purchase.
Lacker was again the lone dissenting vote in an eighth consecutive 11-1 decision. Dallas Fed President Richard Fisher also argued about the Fed's bloated balance sheet before giving in.
Throwing money at the problem is no longer effective, some inflation hawks at the Fed have reportedly argued behind closed doors. Lacker went public with his views Friday morning, posting his concerns on the Richmond Federal Reserve's home page.
"Monetary policy has only a limited ability to reduce unemployment, and such effects are transitory and generally short-lived," Lacker said.
Even if the Fed is correct in purchasing assets, the decision to snap up mortgage-backed securities is the wrong way to go about it. He argues that the FOMC should confine its purchases to Treasurys.
"Purchasing agency mortgage-backed securities can be expected to reduce borrowing rates for conforming home mortgages by more than it reduces borrowing rates for nonconforming mortgages or for other borrowing sectors, such as small business, autos or unsecured consumer loans," Lacker said.
"Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve," he added.
The Fed pledged to maintain its support as long as unemployment stays above 6.5%, but such a target is overly simplistic, according to Lacker.
"A single indicator cannot provide a complete picture of labor market conditions. Therefore, I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is (appropriate)," said Lacker.
"I would prefer to describe in qualitative terms the economic conditions under which our monetary policy stance is likely to change."
by RTT Staff Writer
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