Fed’s Lacker Opposes Further Bond Purchases as Risking Inflation

Federal Reserve Bank of Richmond President Jeffrey Lacker said he opposes additional purchases of securities by the central bank because they will complicate an eventual exit from record stimulus and risk a surge in inflation.

“We cannot continually buy more securities and create more bank reserves without jeopardizing our inflation goal,” Lacker said in the text of a speech today in Charleston, W.Va. “In my view, the balance of considerations suggests that we should be standing pat now rather than easing policy further.”

The Richmond Fed chief was the only policy maker to cast a dissenting vote at the Federal Open Market Committee’s Oct. 23- 24 meeting, at which officials maintained $40 billion in monthly purchases of mortgage-backed securities and repeated that interest rates will probably stay near zero at least through mid-2015. He has dissented from every FOMC decision this year.

A number of Fed officials said the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist, according to minutes of their last meeting released yesterday.

“The larger our balance sheet when the time comes to withdraw monetary stimulus, the more difficult and risky that process will be,” Lacker said at the West Virginia Economic Outlook Conference. While the Fed has tools to unwind stimulus and avoid inflation, “we are in unchartered territory,” making getting the timing right difficult, he said.