Two of the most prominent central bankers opposed to the Federal Reserve’s decision this week to launch a fourth round of quantitative easing (QE4) let their opinions be heard on Friday. Jeffrey Lacker and Richard Fisher – Presidents of the Richmond and Dallas Federal Reserve Banks, respectively – made public comments warning that QE4 could lead to escalating inflationary risks and more uncertainty for an already-fragile U.S. economy.
Lacker, a current voting member of the Federal Open Market Committee (FOMC), has cast a dissenting vote at each Fed meeting this year against various facets of the central bank’s easy monetary policies. In a statement explaining his most recent dissent, Lacker noted that “I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is an appropriate and balanced approach to the FOMC’s price stability and maximum employment mandates.”
The Richmond Fed President went on to say that “With economic activity growing at a modest pace and inflation fluctuating close to 2 percent the Committee’s inflation goal – further monetary stimulus runs the risk of raising inflation and destabilizing inflation expectations.”
Lastly, Lacker contended that by purchasing mortgage-backed securities, the Fed has chosen to favor housing over other aspects of the U.S. economy. “Deliberately tilting the flow of credit to one particular economic sector is an inappropriate role for the Federal Reserve,” he argued, and falls under the category of fiscal policy, which is the responsibility of Congress.
(For more analysis of the Federal Reserve’s impact on the markets, visit GoldAlert Pro at http://pro.goldalert.com)
Fisher, a previous but not current FOMC voting member, stated on CNBC this morning that he disagreed with the Fed’s decision to change the manner in which its near-zero Federal Funds rate is now linked to specific unemployment and inflation thresholds.
The Dallas Fed President also warned that the central bank’s “engorged balance sheet” has created a type of “Hotel California” monetary policy – in reference to the popular song by the Eagles where one can “check out anytime you like, but you can never leave.”
While Lacker and Fisher may have many supporters outside of the Fed, they remain in the minority at the central bank. Fed Chairman Bernanke, Vice Chair Janet Yellen, New York Fed President William Dudley, and most of the other FOMC members remain firmly in the dovish camp and are likely to maintain their large majority in 2013.
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