Lacker: Slow-Growth Fix Is Beyond Fed’s Powers

CHANTILLY, Va. — No doubt the economic recovery has been disappointing so far, but “the factors that have held back growth this year — and seem likely to abate — are largely beyond the power of the central bank to offset,” Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said Thursday.

Besides, “given current inflation trends, additional monetary stimulus at this juncture seems likely to raise inflation to undesirably high levels and do little to spur real growth,” Lacker said in remarks prepared for the Dulles Regional Chamber of Commerce.

Presenting a “cautiously optimistic” view of the recovery, Lacker said he expects inflation to average 2% over the coming year, amid a gradual recovery that should yield gross domestic product growth close to 4% over the next two years. Still, he did not rule out the possibility of a weaker growth that could continue at a pace of 2.75%.

In fact, at this juncture, the recovery rate is independent from the Federal Reserve’s monetary policy, Lacker said.

To illustrate his point, he noted that the second round of quantitative easing that was decided in November 2010 did “little to spur growth” while raising inflation, a policy objective that is “clearly” no longer desirable.

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