Fed’s Lacker Suggests He Opposes More Stimulus

Monetary policy does not influence economic activity as much as people think, Federal Reserve Bank of Richmond president Jeffrey Lacker said Friday.

“Relatively persistent impediments” have held back economic expansion, he said, keeping real growth to about 2.5% in the last half of 2011, close to the average rate since the recession bottomed out.

Over the past 150 years, real GDP averaged 3%, and as much as “5% or 6% coming out of a sharp recession.” With “disappointingly slow growth” comes “calls for more central bank stimulus.

“But monetary policy is given credit for entirely too much influence on real economic activity,” Lacker said. “Monetary policy is about inflation — that is, the value of money. The effects of changes in monetary policy on real output and employment are largely the transitory byproducts of frictions that delay the timely adjustment of prices to changes in monetary conditions.

“Over time, these effects dissipate, and growth is governed almost entirely by the evolution of a society’s technology, skills, resources and trading opportunities,” he said. “The macroeconomic experience of 2011 provides vivid illustration — despite large-scale efforts to provide more monetary stimulus, growth disappointed and inflation moved upward.”

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