The Federal Open Market Committee's plan to not sell agency mortgage-backed securities (MBS) was criticized by Federal Reserve Bank of Richmond President Jeffrey Lacker.
"I cannot support the Committee's planned approach to moving the Fed's balance sheet toward its normal state," Lacker said in a statement released Friday morning. "In particular, the statement says that the Committee currently does not anticipate selling agency mortgage-backed securities (MBS). I believe this approach unnecessarily prolongs our interference in the allocation of credit."
Lacker said he backs the plans laid out for conducting interest rate policy when it's appropriate to raise rates, and the tools the Fed plans to "use to influence the federal funds rate and other short-term interest rates. The interest rate paid on excess reserves will be adjusted to move the federal funds rate into the target range established by the Committee. The overnight reverse repurchase facility will be a backstop, used only as necessary, and will be phased out when no longer needed."
Also, he said he supports "the principle that the Federal Reserve will, in due course, hold no more securities than necessary to implement monetary policy efficiently and effectively, and that it will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy."
The portion he objects to would keep mortgage interest rates low, at the expense of other borrowers. "While this would favor home mortgage borrowers, it tilts the playing field against other borrowing by consumers," he said.
Such favoritism goes against monetary policy principles, which say the Fed should try "to improve financial or credit conditions broadly, not to allocate credit to narrowly-defined sectors or classes of borrowers."
Lacker said the Fed should "plan to actively reduce our holdings of MBS through sales at a steady, predictable pace."
