One aspect of the Federal Reserve's recently announced third round of large-scale asset purchases which Richmond Federal Reserve Bank President Jeffrey Lacker likes is its "open-endedness," he made clear Tuesday night.
That feature of the plan will give the Fed more flexibility to stop buying bonds if inflation worsens.
But Lacker had nothing else good to say about "QE3" in a speech to the Money Marketeers of New York University and later to reporters.
He was particularly critical of the decision last Thursday by the Fed's policymaking Federal Open Market Committee to focus on buying $40 billion a month of mortgage-backed securities, instead of Treasury securities.
Lacker, a voting member of the FOMC, dissented -- again -- when the FOMC's launched a third, open-ended round of large-scale asset purchases to lower long-term interest rates and extended the expected period of zero short-term rates through at least mid-2015.
The FOMC decision not to pre-announce a total amount or end date for its MBS purchases "lowers the bar for stopping the program if inflation pressures should emerge and become destabilizing," he said.
"That's a positive feature."
But Lacker deplored the focus on MBS buying. He said that will tend to reduce interest rates for home buyers and home owners at the expense of other borrowers, particularly small businesses and corporations.
Explaining why he disagreed with buying MBS rather than Treasuries, Lacker said, "If you are effective you could pull down the yields on the Treasuries" generally speaking "so all interest rates to all borrowers come down commensurately."
"But if you buy MBS, you are likely to aid MBS borrowers but won't help" others such as "small business borrowers or corporate borrowers or student loan borrowers."
Lacker was asked about what the FOMC should do at the end of the year when the $267 billion "Operation Twist" Treasury bond buying program is scheduled to expire, but was vague, saying the FOMC would just have to evaluate what it wants to do at that point.
Earlier, in response to audience questions, Lacker said he would have preferred if the FOMC "would have stood pat" and "held fire."
He said he "counseled patience" because "monetary policy has done what it can."
Although Fed Chair Ben Bernanke has cited research showing benefits of the first two rounds of quantitative easing, Lacker said "there is a lot of room for skepticism" about the impact of Q.E.
He called the research on Q.E. impact, particularly MBS buying, "not mature."
He also disputed the benefits for housing. Not only is that an inappropriate form of credit allocation, he said, but "I haven't seen convincing case housing deserves some special subsidy."
Lacker called the calendarized form of "forward guidance" in the FOMC statement -- the assertion that it now expects the funds rate to stay near zero "at least through mid-2015" -- "unwieldy and difficult."
"If we're saying we're going to keep rates lower in 2015 than we otherwise would when we get to be our 2015 selves, then let's say something more clear about that," he said, adding that he would have preferred a flat statement that the FOMC will keep rates low "until the labor market strengthens significantly as long as inflation expectations are stable and we're maintaining price stability."
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