Fed’s Lacker: Growth Sluggish, Fine with Tapering
In the wake of the selloff in stocks and bonds after the Fed laid out its timetable for tapering, markets are looking to see whether they have misread the Fed. Fed Presidents Bullard and Kocherlakota have spoken and both were pretty dovish. Fed President Lacker added his voice to the mix.
He doesn’t think what ails the economy can be fixed by monetary policy and sees slow growth, near the bottom of the range for Fed governor estimates. Lacker also played down the declining inflation and inflation expectations numbers. Overall, I see his commentary as more hawkish than the other two. I still expect the Fed to stick to its timetable, with the variation to the tapering outlook coming from how the economy fares compared to the Fed’s economic forecasts. Pro members, see my comments from Monday and last Thursday.
Comments below are courtesy of Bloomberg Television summary. The full interview will air Sunday on Bloomberg Television’s “Capitol Gains”.
President Lacker on today’s revised GDP Report:
“Growth has been fluctuating around 2%, so 1.8% is in the ballpark. I have not looked at the details since it came out. I’ve been on the road this morning. It is consistent with an outlook of continued growth of 2%. It’s been three or four years now that we have had steady growth at a disappointing rate. For me, the best estimate is that we will continue to get growth at a disappointing rate going forward.”
On whether is calls into question the outlook put out last week on central tendency for growth moving forward:
“I was on the low end of those bars in the graphs we put out. My forecast for next year is just a smidgen above 2%, above 2.25%. I am in the low end of all my colleagues. Most of the world expects growth to accelerate to about 3% next year. We have been doing this for two or three years now, expecting growth to pick up about 3%, and it just has not happened. I am taking my lumps and learning and moving on and thinking economy is telling us that this is all we are capable of right now. I am optimistic but we could be in for a couple more years of sluggish growth”
On what quantitative easing means for bond purchases going forward, given the numbers just released:
“I do not think monetary policy is capable of doing much about the impediments that are slowing down growth right now. There are structural factors in the labor market affecting labor force participation. There are impediments, hiring an investment projects that are keeping firms from hiring and investing decision. It is difficult to pin those sources down. But to me, is seems persuasive that those things are keeping growth at a slower rate than it would be. I don’t see monetary policy playing a big role in overcoming those. We have provided a lot of accommodation since the recession. A lot of accommodation has been in place. We’ve been adding accommodation in a couple of successive waves. I think we have done enough. I’m fine with us tapering off right now.”
On whether the scaling back of Chairman Bernanke and others on the FOMC guidance by the end of this year, changes following today’s numbers:
“I suspect not. The data from the labor market is going to be more determinative. Looking at the labor market improvements is the order of the day. I think people lost sight of the tremendous improvements we have seen in the outlook from last September to now. Forecast for the unemployment rate has come down fairly significantly over that time frame. I think people have gotten caught up in the week to week numbers in the spring.”
On James Bullard’s concerns about dissent because inflation was getting too low:
“Like President Bullard, I’m a symmetric hawk; I’m hawkish on both sides. The low inflation numbers have given me a pause, but they appear to be transitory. I say that on the relative firmness of inflation expectation measures and serving market measures and other factors as to where the slowness in inflation has come from. I’m pretty confident it will pick up. If it does not, I will certainly be alert to that possibility.”
On whether he would have dissented if he was a voting member of the FOMC:
“I think I would have gone along. I think I am convinced enough that these [numbers] are transitory and I would have gone along with the asset sales announcement. I could have been descending all year anyway. I dissented all year last year against these asset purchases. I could have a dissented along with Esther George. I probably would have been a dissenting on that side.”
On the questions of Fed communications and the markets not getting the right message from the Fed:
“I think messaging is there now. I think the Chairman did an excellent job of describing where the committee is and what the committee anticipates is likely to happen as conditions unfold. He did a good job of emphasizing the extent to which how that unfolds is likely to depend on the incoming data. I think those are the two orders of the day. It has been a rocky period over the last couple of months in terms of communication from the fed. For years, we have been anticipating there would come a time when we would want to pivot and start reducing the extent to which we will increase accommodations. This is an open asset purchase program. We did not face this problem of having to tell people, now we know when it is likely going to end. We had to solve the new communication puzzle first. I think we got to where we need to be in and I think maybe markets got a little ahead of us in terms to what they were expecting. I think they have gotten in a better alignment with the committees expectations.
On whether his bottom line is to see the balanced sheet decreased:
“Yes, but we are increasing the balance sheet. We are not anywhere decreasing it yet.”