The latest policy announcement by the Fed's Open Market Committee had one dissenting voice - Jeffrey Lacker, president of the Richmond Federal Reserve. Lacker has resisted the Fed's stimulus policy at all seven meetings this year, so the surprise announcement that the Fed will keep interest rates near zero even after the recovery starts was of course something he opposed. Chairman Ben Bernanke said that keeping interest rates abnormally low during the early stages of recovery will give businesses confidence to invest during turbulent times.
The FOMC at the October meeting pledged to continue buying mortgage-backed bonds to the tune of $143 billion worth by the end of the year. The Fed is already buying long term Treasury notes at the rate of $45 billion a month as part of its quantitative easing policy. Lacker believes that what is ailing the economy is beyond the ability of even extraordinary measures in monetary policy to correct.
"Improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset,"
What really set off inflation alarm bells for Lacker was the announcement that the Fed plans to keep on the present course of bond-buying and super low interest rates for nearly three years - to mid-2015. Lacker believes that such measures for such a long time will fuel inflation beyond acceptable levels.
What do you think? We're interested in hearing from you! Will Bernanke's plan eventually work, or is Lacker correct in saying that what ills the economy is beyond the ability of the Fed to fix?
-by David Peterson