Fed's Lacker cites inflation concerns for dissent

[June 23, 2012]  WASHINGTON (AP) -- The Federal Reserve official who dissented from the central bank's latest effort to support to the economy said Friday he objected because he doesn't think it will do much to boost growth. And he says it will raise the risk of inflation.

Jeffrey Lacker, president of the Richmond regional Fed bank, cast the lone dissent in the Fed's 11-1 decision Wednesday to extend Operation Twist for another six months.

Under the program, the Fed has been selling $400 billion in short-term Treasurys since September and buying longer-term Treasurys. The Fed said it will extend the program through December using $267 billion in securities.

Lacker said the outlook for growth has clearly weakened in recent weeks. But he said the solution to the slowdown is beyond the Fed's abilities to offset at the current time without also raising the threat of inflation.

"A significant increase in inflation could threaten the Fed's credibility and make it more difficult to achieve the Fed's long-run goals," Lacker said in a statement posted on the Richmond Fed's website Friday. Lacker has cast the lone dissenting vote at all four Fed meetings this year.

The Fed took action after citing a sharp slowdown in hiring this spring. Employers have added an average of only 73,000 jobs a month in April and May. That's much lower than the average of 226,000 a month added in the first three months of this year.

The central bank also downgraded its outlook for the economy. It now expects growth of just 1.9 percent to 2.4 percent for the year. That's half a percentage point lower than its previous estimate in April. And it thinks the unemployment rate, now 8.2 percent, won't fall much further in 2012.

In addition to extending Operation Twist, the Fed reiterated its plan to keep short-term rates at record lows until at least late 2014. And it said it's prepared to act further if the economy deteriorates.

[Associated Press]

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