December 20, 2011 / 1:57 AM / 7 years ago

Lacker sees no need for Fed to ease

CHARLOTTE (Reuters) - The Federal Reserve is unlikely to need to ease monetary policy further given the country’s steady if moderate pace of economic growth, Richmond Fed President Jeffrey Lacker said on Monday.

Lacker, an inflation hawk who will rotate into a voting seat in the policy-setting Federal Open Market Committee next year, said he expects the economy to expand between 2 percent and 2.5 percent next year.

He said this forecast was predicated on further gains in payroll employment, but also built in a significant slowdown in the euro zone.

“I’m hard pressed to see the rationale for further monetary stimulus,” Lacker told reporters after a speech.

Lacker said this year’s spike in U.S. inflation cast doubt on the notion that underused productive capacity provides a sufficient buffer against inflation.

“The doubling of inflation this year, despite unemployment averaging 9 percent, undercuts the hoary notion that ‘slack’ in the labor market can be counted on to keep inflation contained,” Lacker said. “Inflation can accelerate despite elevated levels of unemployment.”

Some Fed officials believe another round of monetary stimulus could help bring down the nation’s 8.6 percent jobless rate further. But Lacker stuck to the view that the bulk of problems holding back the job market are beyond the reach of monetary policy.

U.S. gross domestic product expanded just 2.0 percent in the third quarter, though a restocking of inventories is expected to push the annualized rate briefly over 3 percent during the fourth quarter.

Lacker said he dissented against the Fed’s decision to lower the rate on its foreign exchange swaps with other major central banks because he disagrees with the facility in principle, saying it blurs the line between fiscal and monetary policy.

Europe, which remains in financial disarray as countries grapple with the prospect of a deeper fiscal union, suggests demand for U.S. exports will take a hit. But this should not derail the U.S. recovery, Lacker said.

(Reporting By Pedro Nicolaci da Costa; Editing by Andrea Ricci)

This story was corrected in paragraph 3 to make clear forecasts predicated on payroll employment gains, not payroll tax cut

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