Federal Reserve Bank of Richmond President Jeffrey Lacker said economic growth this year will "subside" to 2 percent while inflation will rise toward the Fed's 2 percent goal over the next year or two.
The Fed's decision last month to pare asset purchases to $75 billion a month from $85 billion was appropriate amid "substantial improvement" in labor market conditions, Lacker said Friday in the text of a speech prepared for delivery in Raleigh, N.C.
Payrolls in December increased at the slowest pace since January 2011, indicating a pause in the recent strength of the labor market that may have reflected the effects of bad weather.
The 74,000 gain in payrolls, less than the most pessimistic projection in a Bloomberg survey, followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.
"The pickup in growth late last year is certainly a welcome development, and it may well be a harbinger of stronger growth ahead," said Lacker, who doesn't vote on policy again until 2015 and has opposed bond buying. While growth may be slower than in recent decades, "our economy is by no means stagnating; productivity is rising, incomes are growing and innovation is occurring."
The Fed's taper of bond purchases last month was the first step in curtailing its third round of asset purchases, which it announced in September 2012. The buying has pushed the Fed balance sheet to more than $4 trillion.
"I supported this decision because it was consistent with the linkage the committee established between the asset purchase program and the outlook for labor market conditions," Lacker said today to the Greater Raleigh Chamber of Commerce. "It made sense to initiate the process of bringing the program to a close. I expect further reductions in the pace of purchases to be under consideration at upcoming meetings."
