The Federal Reserve's new round of monetary stimulus is unlikely to do much for economic growth without a damaging rise in inflation, a top policymaker of the U.S. central bank said on Friday.
Jeffrey Lacker, president of the Richmond Federal Reserve Bank, who is an inflation hawk and has cast a dissenting vote at every meeting this year of the Federal Open Market Committee, also said he opposes the Fed's forward guidance on interest rates, in which policymakers expect to keep rates at very low levels until at least mid-2015.
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"Such language could be misinterpreted as suggesting a diminished commitment to keeping inflation at 2 percent," Lacker told an event sponsored by the University of Virginia's Frank Batten School of Leadership and Public Policy. "I would oppose adopting such a stance, and I do not believe my colleagues on the FOMC intended that interpretation."
The Fed in September launched an open-ended bond-buying program targeting $40 billion in mortgage-backed securities per month.
Lacker said he expects economic growth, which registered a paltry 1.3 percent annual rate in the second quarter, will pick up next year but he did not specify a forecast.
U.S. unemployment fell sharply in September to 7.8 percent, and Lacker said continued healing of the job market should boost consumer sentiment and support household spending.
Consumer confidence rose to a five-year high in October, according to a survey from Thomson Reuters and the University of Michigan released on Friday.
In response to the financial crisis and devastating recession of 2007-2009, the Fed brought official interest rates down to effectively zero percent and more than tripled its balance sheet to a record size not far below $3 trillion.
Lacker reiterated his opposition to the Fed's mortgage bond purchases, which he argues favor one sector of the economy over another and cross the line into fiscal policy.
He said he was optimistic Europe's financial strains would abate next year, lifting a cloud that's been hanging over the U.S. economy for many months.
Asked about whether recent U.S. financial reforms had made the banking system safer, Lacker said the new legislation falls short of creating an environment where large banks will be allowed to fail without government help.
"I do not think that Dodd-Frank has provided us with a stable and sustainable framework for regulating the financial sector," he said.
(Editing by Neil Stempleman and Leslie Adler)