26 Sep 2013
Fed's Lacker warns forward guidance could damage US growth
FXstreet.com (Barcelona) - Federal Reserve Bank of Richmond President Jeffrey Lacker said on Thursday that the FOMC's use of forward guidance, coupled with the bond purchase program, could delay the central bank's decision to raise interest rates in time to stimulate growth.
Speaking at the Swedbank Economic Outlook Seminar in Stockholm, the hawkish Fed head argued that "forward guidance could have the paradoxical effect of reducing current economic activity, by reducing expectations about the level of future economic activity." He also said that the QE program could increase inflationary pressures, even though they are currently remain subdued.
Furthermore, Lacker criticized the asset purchase program as an instrument favoring private sector assets, which “invites special pleading from interest groups and risks entanglement in distributional politics.”
He emphasized that public attention to central bank moves has increased considerably following the onset of the financial crisis in 2008. Referring to the central bank's unexpected decision not to start tapering yet in September, he pointed out that a lack of consistency in Fed's communications could “erode the faith people place in future central bank statements."
Speaking at the Swedbank Economic Outlook Seminar in Stockholm, the hawkish Fed head argued that "forward guidance could have the paradoxical effect of reducing current economic activity, by reducing expectations about the level of future economic activity." He also said that the QE program could increase inflationary pressures, even though they are currently remain subdued.
Furthermore, Lacker criticized the asset purchase program as an instrument favoring private sector assets, which “invites special pleading from interest groups and risks entanglement in distributional politics.”
He emphasized that public attention to central bank moves has increased considerably following the onset of the financial crisis in 2008. Referring to the central bank's unexpected decision not to start tapering yet in September, he pointed out that a lack of consistency in Fed's communications could “erode the faith people place in future central bank statements."