The Federal Reserve's latest stimulus will not boost economic growth without creating unwanted inflation, said Jeffrey Lacker, president of the Richmond Fed and lone dissenter on the central bank's policy committee.
Lacker said on Friday he also opposes the Fed's indication that it expects to keep interest rates near zero until at least mid-2015, and the suggestion that rates will be keep low even as economic growth picks up.
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"Improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset," Lacker said in a statement. "In such circumstances, further monetary stimulus runs the risk of raising inflation in a way that threatens the stability of inflation expectations."
Three years into an anemic recovery from the deepest recession in generations, the U.S. economy expanded at an annualized rate of just 1.3 percent in the second quarter, and growth is expected to remain below 2 percent in third-quarter figures to be released on Friday.
Unemployment fell quite a bit in September, but remains at an elevated 7.8 percent, and current growth levels suggests little further improvement ahead. Inflation, in the meantime, has remained consistently low and stable.
Against that backdrop, the Fed announced in September that it would embark on an open-ended program of asset purchases aimed at stimulating economic activity and business investment, starting with a monthly $40 billion in mortgage-backed bonds.
This week, it reiterated the policy and made only modest tweaks to its characterization of the economy.
"The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook," read its policy statement released on Wednesday.
Top Fed officials, including its chairman, Ben Bernanke, have argued the effort to keep rates low for a prolonged period will give businesses the kind of certainty that will allow them to invest despite a turbulent global economic backdrop.
But Lacker, who has broken ranks with the Federal Open Market Committee at every meeting this year, thinks monetary policy has already been pushed to its limits.
"I read the Committee statement as saying that the federal funds rate will be exceptionally low for a considerable time after we observe a marked increase in the growth of employment and output," Lacker said.
"I do not believe that a policy conforming to this characterization would be appropriate, because it implies providing too much stimulus beyond the point at which rate increases will be required to keep inflation in check," he added.
(Editing by Eric Walsh)