Federal Reserve Bank of Richmond President Jeffrey Lacker said in Washington that more monetary stimulus risks stoking inflation while doing little to strengthen the recovery. San Francisco’s John Williams said the outlook he expects doesn’t warrant more bond buying, and Atlanta’s Dennis Lockhart repeated that he’s skeptical of the benefits of such action.
The rate-setting committee left policy unchanged after its April 24-25 meeting, and Chairman Ben S. Bernanke signaled that further stimulus is unlikely unless the economy unexpectedly deteriorates. Bernanke said it would be “reckless” for the central bank to pursue policies that would drive up inflation when it’s already near the Fed’s goal of 2 percent, while noting he’s “prepared to do more” should conditions worsen.
“For us to provide more monetary stimulus at this point would likely raise inflation risks and not likely do much for growth,” Lacker said in an interview today at the Bloomberg Washington Summit hosted by Bloomberg Link. While “it’s not a gangbusters recovery by historical standards,” growth will accelerate, he said.
Central bankers raised their forecasts for the economic expansion and the labor market in 2012 last week while repeating that borrowing costs will probably remain “exceptionally low” at least through late 2014. Lacker has cast the only dissenting vote at each of the FOMC’s policy meetings this year, opposing the statement that conditions will warrant low rates until then.
‘Moderate’ Growth
Williams said today in Beverly Hills, California, that he expects the economy to grow at a “moderate” pace of 2.5 percent and “pick up somewhat” during the next few years.
Growth in the world’s largest economy slowed to a 2.2 percent annual pace in the first quarter from 3 percent in the final three months of 2011, according to a Commerce Department report last week. While consumer spending increased by the most in more than a year, growth was restrained by a diminished contribution from business inventories and a drop in government spending.
Williams, who in March said the Fed “may need to do more” and had to “keep applying monetary policy stimulus vigorously,” said today he would see the need for additional bond purchases only if the pace of economic growth flagged enough to stall labor-market gains.
Progress on Unemployment
“One threshold for me, in my own thinking, would be if we see economic growth slow to the point where we’re not seeing further progress in bringing the unemployment rate down,” Williams said today. Stimulus might also be needed if inflation dropped “significantly” below the Fed’s 2 percent goal.
Those aren’t “the circumstances I currently expect,” Williams said at the 2012 Milken Institute Global Conference.
The Labor Department will release its April jobs report on May 4. The economy added about 161,000 jobs and the unemployment rate held at 8.2 percent, according to the median forecasts in a Bloomberg survey of economists. In March, employers added 120,000 jobs, the fewest since October.
Stocks have rallied on better-than-forecast corporate profits and signs of economic strength. The Standard & Poor’s 500 Index has risen 12 percent this year, the best start to a year since 1998.
The index rose 0.6 percent to 1,405.82 at the close of trading in New York after a report showed that U.S. manufacturing unexpectedly expanded in April at the fastest pace in 10 months.
Treasury Yields
Yields on 10-year Treasury notes rose from almost the lowest level in three months after the figures, climbing three basis points, or 0.03 percentage point, to 1.94 percent.
Philadelphia Fed President Charles Plosser, who doesn’t vote on monetary policy this year, also warned of inflation risks today, saying the central bank must be ready to contain accelerating prices.
“With the very accommodative stance of monetary policy that has now been in place for more than three years, we must guard against the medium- and longer-term risks of inflation,” Plosser said in San Diego. He repeated that the Fed may have to raise interest rates “well before” the end of 2014 “in the absence of some shock that derails the recovery.”
To contact the reporters on this story: Caroline Salas Gage in New York atcsalas1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
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