–Case Can Be Made That Withdrawing Stimulus May Be Warranted Soon
–Economic Downturn a ‘Pretty Remote’ Probability

By Yali N’Diaye

SALISBURY, Md (MNI) – While he hasn’t made his mind yet about
whether monetary policy should withdraw stimulus, Richmond Federal
Reserve Bank President Jeffrey Lacker said Monday there shouldn’t be any
more stimulus.

“My sense is that we shouldn’t be adding monetary stimulus at this
point,” Lacker said during a question-and-answer session with reporters
following a speech at the Salisbury- Wicomico Economic Development
Annual Meeting.

In fact, “I think the case can be made that withdrawing stimulus,”
he said, “may be warranted soon.” However, “I haven’t decided yet.”

Earlier in his prepared remarks, Lacker said he opposed the
so-called Operation Twist and was “unwilling to support” the decision to
maintain the size of the Fed’s MBS portfolio.

He said the maturity extension program is likely to have only
“minor” effects on growth, with the main effect likely too be to raise
inflation instead.

Turning to inflation, Lacker, who will be a voting member of the
Fed’s policymaking Federal Open Market Committee next year, said earlier
during his speech that he does not see inflation falling “much below 2%”
over a sustained period, calling for vigilance.

Later asked where he sees the inflation come from given that oil
prices have come down and he expects modest growth in the near term,
Lacker pointed out that expectations are still above 2%, which does not
indicate “there is some downward drag from expectations.”

On the growth front, Lacker said in his prepared remarks that
following a near-term pace of 2% to 3%, GDP growth should “gradually
strengthen,” although a “less robust path” cannot be ruled out.

In particular, during a question and answer session with the
audience, Lacker stressed the important problem of unresolved
foreclosures dragging the recovery in the housing market.

“It’s going to be a couple of years before we’re caught up,” he
predicted.

“It’s going to be the middle of this decade before we see a pick up
in housing construction,” and before there is an increase in housing
demand, he added.

He later told reporters, however, that the probability of a
downturn is “pretty remote.”

As to the European debt crisis, Lacker told reporters developments
are “demonstrating the economic cost of ambiguous discretionary bailout
policies.”

He clarified that “creditors of banks and countries are unclear on
just what public sector support is going to be forthcoming.”

“Financial market volatility since mid summer has been driven by
shifts in views about all those questions,” Lacker said.

** Market News International **

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