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 Richmond Federal Reserve President Jeffrey Lacker said U.S. stocks
had performed well looking at the last year and recent moves likely
reflected a downward adjustment in expectations for growth.
Importantly, moves in financial markets did not seem to have
affected the outlook for jobs, a key benchmark for future policy at
the U.S. central bank, which has started to trim back its policy
stimulus by reducing asset purchases by $10 billion at each of its
last two policy meetings.
"I think the hurdle ought to remain pretty high for pausing in
tapering," Lacker, who has long opposed the aggressive stimulus,
told reporters.
"We linked the asset purchase programs to significant improvement in
the outlook for labor market conditions, that has definitely
occurred, and I don't see financial market developments as having
affected the outlook for labor market conditions materially at this
point."
He declined to comment on what kind of scenario might pass the
hurdle.
The Fed trimmed its monthly asset-purchase program to $65 billion
per month last week and policymakers will not meet again until
March. Lacker said he expected the current pace of a $10 billion
reduction every meeting to continue and played down the chance of a
bigger move.
Weak U.S. data pushed the benchmark S&P 500 index into its worst
single-day drop in seven months on Monday and MSCI's benchmark index
for emerging market stocks <.MSCIEF> hit its lowest level since
August.
Lacker, who is among the more hawkish of the Fed's 17 current
policymakers, said markets might be coming in line with his view
that economic growth would slow this year to "a little above" 2
percent, citing muted spending by consumers and businesses and
modest expected labor productivity.
"I think maybe now (they are) revising down their sense of how much
momentum the second half is really providing us," he said in
response to a question.
"I wouldn't call it 'turmoil' yet. We've still got a great stock
market looking back over the last year."
Lacker's growth forecast is on the low end of the range of
predictions, of between 2.2 percent and 3.3 percent GDP growth, made
in December by Fed policymakers. New forecasts are also due in
March.
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GUIDANCE TWEAK
In a speech at Shenandoah University, Lacker also predicted, as most
Fed officials have, that today's low inflation will rise to the
Fed's 2-percent goal over the next year or two.
The central bank has said it will keep benchmark interest rates near
zero well past the time unemployment falls below 6.5 percent,
especially if inflation remains below target.
The jobless rate has now fallen to 6.7 percent and Lacker said the
so-called forward guidance would have to be rejigged as and when
that threshold was reached.
"We will have to reformulate it and provide some qualitative way of
providing an assessment of what time horizon we think is most
likely," said Lacker, who does not vote on monetary policy this
year.
"I'd point out that the SEP (summary of economic projections)
provides a rich portrayal of the array of views within the committee
and even if we said nothing the SEP would be pretty informative."
Earlier, he told the audience there were various factors at play
determining the timing of the first rate rise, noting he personally
saw a move in early 2015.
"If we do see growth pick up to 3 percent, 2-3/4 percent on a
sustained basis over three or four quarters, I think that would be a
clear sign that increasing rates would be needed," he said, although
an earlier, pre-emptive hike might also be appropriate.
"I think you are likely to hear communication from the Federal
Reserve before it happens indicating that it's likely to happen
soon, so I doubt we are going to surprise you," Lacker said.
(Reporting by Krista Hughes; writing by
Krista Hughes and Jonathan Spicer; editing by Chizu Nomiyama)
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