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 Both Richmond Fed President Jeffrey Lacker, a policy hawk, and San
Francisco Fed President John Williams, a centrist, told reporters
after a policy conference here that they would not want to risk
unmooring the public's expectation that inflation will rise back to
the Fed's 2 percent goal in the next few years.
That, Williams said, is what appears to have happened in Sweden and
Norway after those countries raised rates to address financial
stability risks. Fed economist Andrew Levin had shown a slide making
that point earlier at a presentation that both policymakers
attended.
Chicago Fed President Charles Evans, one of the Fed's most ardent
doves, echoed those sentiments.
"Degrading monetary policy tools to mitigate financial instability
risks would lead to inflation below target and additional resource
slack," Evans said in slides released Friday for a talk he is set to
give in Istanbul on Monday.
The role financial instability concerns should play in Fed
policymaking has long been a subject of debate at the U.S. central
bank. Over the past year, Fed Governor Jeremy Stein has argued
strongly that there may be times when the Fed should raise rates to
stamp out potential bubbles.
Stein left the Fed earlier this week to return to his post at
Harvard University, leaving the Fed without a forceful public
advocate of that idea.
Philadelphia Fed's Charles Plosser told reporters on Friday he was
"kind of on the same page" as Williams and Lacker, in terms of
rejecting a financial stability mandate for the Fed.
But he added that he is worried about the risk that the Fed's
extraordinarily easy policies over the past five years themselves
could stoke financial instability.
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Williams, Lacker and Plosser were in Palo Alto attending a central
banking conference put on by Stanford University's Hoover
Institution that also featured Kansas City Fed President Esther
George.
On Friday, Williams reiterated his view that rates, near zero since
December 2008, should not rise until next year and should do so only
slowly. That's the view also of Fed Chair Janet Yellen, who has said
rates will stay low for a "considerable time" after the Fed winds
down its bond-buying program this coming fall.
Lacker said he would support an immediate tightening of monetary
policy by selling the Fed's holdings of mortgage-backed securities,
but added that the size of the Fed's balance sheet will not prevent
it from carrying out proper monetary policy.
Plosser said he would be open to varying approaches toward trimming
the Fed's massive balance sheet, which now tops $4 trillion after
years of stimulative bond-buying, but said his preference is for an
eventual return to a smaller balance sheet.
(Reporting by Ann Saphir)
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