The time to tighten monetary policy is when “economic growth is strong enough and well-enough established, even if it is not yet especially vigorous,” Federal Reserve Bank of Richmond president Jeffrey Lacker said yesterday in remarks before the Virginia House Appropriations Committee.
“It is hard to predict when that will occur,” he said, according to a prepared text of his remarks released by the Fed.
Inflation is about 1.5%, which Lacker called “ideal.” He noted there is little risk of inflation falling further.
“The historical record suggests that the early years of a recovery is when the risk is greatest that confidence in the stability of inflation erodes and we see an upward drift in inflation and inflation expectations,” he said. “This risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves ... and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion.”
