From The Last Sane Person At The Fed: "More Easing Will Not Lead To Growth, Would Lead To Inflation"

Tyler Durden's picture

There are two key sentences which explain why there is now only sane voice left among the FOMC's voting members (recall that back in December 2011 we explained that more QE was only a matter of time now that the Doves have full control). From Jeffrey Lacker: "I dissented because I opposed additional asset purchases at this time. Further monetary stimulus now is unlikely to result in a discernible improvement in growth, but if it does, it’s also likely to cause an unwanted increase in inflation.... Channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve. As stated in the Joint Statement of the Department of Treasury and the Federal Reserve on March 23, 2009, 'Government decisions to influence the allocation of credit are the province of the fiscal authorities.'" That, however, is no longer the case, as the only real branch of 'government', accountable and electable by nobody, going forward is that located in the Marriner Eccles building, named ironically enough, for the last Fed president who demanded Fed independence, and who was fired by the president precisely for that reason. It is in this building where the central planners of the New Normal huddle every month, and time after failed time, hope that "this time it will be different" and that wealth can finally be achieved through dilution of money.

From the Federal Reserve Bank of Richmond

Richmond Fed President Lacker Comments on FOMC Dissent

The Federal Open Market Committee (FOMC) decided on September 13, 2012, to purchase additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee released a statement after the meeting saying that it expects a highly accommodative stance of monetary policy to remain appropriate for a considerable period after the economic recovery strengthens, and that it currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

I dissented because I opposed additional asset purchases at this time. Further monetary stimulus now is unlikely to result in a discernible improvement in growth, but if it does, it’s also likely to cause an unwanted increase in inflation.

Economic activity has been growing, on average, at a modest pace, and inflation has been fluctuating around 2 percent, which the Committee has identified as its inflation goal. Unemployment does remain high by historical standards, but improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset. In such circumstances, further monetary stimulus runs the risk of raising inflation in a way that threatens the stability of inflation expectations.

I also dissented because I disagreed with the characterization of the time period over which the stance of monetary policy would be highly accommodative and the federal funds rate would be exceptionally low. I believe that such an implied commitment to provide stimulus beyond the point at which the recovery strengthens and growth increases would be inconsistent with a balanced approach to the FOMC’s price stability and maximum employment mandates.

Finally, I strongly opposed purchasing additional agency mortgage-backed securities. These purchases are intended to reduce borrowing rates for conforming home mortgages. Such purchases, as compared to purchases of an equivalent amount of U.S. Treasury securities, distort investment allocations and raise interest rates for other borrowers. Channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve. As stated in the Joint Statement of the Department of Treasury and the Federal Reserve on March 23, 2009, “Government decisions to influence the allocation of credit are the province of the fiscal authorities.”