Is it time to steer QE2 back to the dock? One regional Fed president says it is time to ponder.
Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond and an alternate member of the Federal Open Market committee, said in a speech Tuesday that improving economic numbers suggest it is time to “quite seriously” re-evaluate the need for continued quantitative easing, or large-scale Fed purchases of Treasury bonds.
Without necessarily sounding the alarm on inflation, Lacker – long known as one of the more hawkish regional Fed officials, along with Dick Fisher of Dallas and Charles Plosser of Philadelphia – said it is worth keeping an eye on rising food and fuel prices. His comments say he doesn’t buy the output gap argument that inflation doves are making, to the effect that inflation won’t take root until a stronger recovery takes the slack out of the system.
Even so, he concedes that warning signs such as the standard market measures of inflation expectations (see chart, right) aren’t yet flashing red.
The inflation warnings aside, it is clear that like Fed chief Ben Bernanke, Lacker is exercised about the deteriorating U.S. fiscal picture. He warns that a U.S. funding crisis is inevitable if Congress and the White House don’t start acting responsibly, and soon.
Wisdom hasn’t been a hallmark of U.S. policy on practically any front lately, but Lacker says he will keep his fingers crossed.
Aren’t we all.
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