While economic news is both good and bad, when taken together they show an economy growing at a “tepid” pace, Federal Reserve Bank of Richmond president Jeffrey M. Lacker said yesterday.
Experts “are very hesitant” to say a bottom has been reached in housing construction, sales, or prices, and even if the housing market bottoms out later this year, a recovery is likely to be slow, Lacker said, according to prepared text of a speech released by the Fed.
“Earlier this year, many observers extrapolated this slowdown into an outright decline in economic activity and concluded that the economy was in or about to enter a recession,” he said. “But the data we’ve seen since then have not yet shown the sharp, widespread reversals that define a recession, and thus the odds of a severe downturn appear to have diminished. Nevertheless, growth in output and income, while positive, clearly has slowed; employment clearly is declining.”
As for inflation, Lacker said: “The latest figures confirm that inflation is unacceptably high. The price index for personal consumption expenditure increased 3.2% over the 12 months that ended in April, and that figure is likely to rise given Friday’s CPI report for May. To put that in perspective, for several years I have suggested an inflation target of 1.5%.” He also noted that core prices are up just over 2%.
“Part of the rationale for the speed with which the FOMC brought down the funds rate was the risk that the slowdown we are experiencing would prove to be more severe,” Lacker said. “While that uncertainty has not entirely disappeared, my sense is that such downside risks have diminished appreciably. And just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well.”
“Moreover, our attention to risks needs to be two-sided, I believe,” he said. “As we move through this period of low growth, we need to be attuned to the risk that we emerge from the slowdown with inflation following a higher trend than when we went in. This danger associated with the persistence of elevated inflation warrants an additional measure of vigilance.”