Speaking to CNBC on Thursday, Richmond Federal Reserve President Jeffrey Lacker made a bold statement: if he were a dictator of the United States he would end the enormous bond purchasing measures and stop the quantitative easing program almost immediately that are supposedly benefiting the economy.
The Fed is in the midst of $85 billion acquisitions each month of Treasury securities and mortgage-backed securities. Fed Chair Ben Bernanke said the measure is indefinite until the labor market improves. Lacker explained that there is an insufficient amount of evidence to suggest that the Fed’s actions have improved the jobs numbers since the economic collapse.
“I wouldn’t have gone down this asset-purchase path. I’m in the camp that we should taper and stop right now,” Lacker said in an interview on the network’s “Squawk Box” from the 2013 Credit Markets Symposium in Charlotte, North Carolina. “You have to prepare markets, if it was up to me, if you made me dictator, that’s what I would do.”
Lacker argued that as long as the Fed persists in continuing QE then it will be rather difficult to exit. He did note, however, that the Fed’s minutes show there are debates on a proper exit strategy from the present policies.
The current unemployment rate is 7.7 percent and Lacker foresees the jobless figure dipping to the low-seven percent range by the end of the year. He believes the Fed will hit the target unemployment level of 6.5 percent in the future.
“I think a reasonable case can be made that path of unemployment wasn’t affected much by quantitative easing we’ve seen over the past few years,” the Fed president said. “It could be the case that it is lower than it otherwise would be, but I think the evidence is very indirect and very sketchy on this point.”
Lacker concurred that the jobs market is staggering, but said that there are a number of factors contributing to the labor force, such as disability insurance, unemployment insurance benefits and similar programs. “I think that’s quantitatively taking a significant bite out of the labor force participation.”
The overall economy, according to Lacker, will remain growing at two percent and warned that the longer it stays at this level, the more permanent it will become, even with some high spots and dips. He concluded that he was satisfied with inflation stability and believes it will not go beyond two percent.
“I think we’re in a good place now, but I think we shouldn’t be complacent,” said Lacker.
This is the second prominent U.S. official to come out against quantitative easing. This month, former President Reagan budget director David Stockman criticized the Fed’s QE program by saying the day of reckoning is nearing because the Fed cannot continue to buy all of the debt.
“The minute they lose confidence that the central bank can print our way into permanent salvation they will start selling bonds and others will sell the bonds and there will be no bid,” said Stockman. “It gets liquidated. This is all debt on debt; nobody owns the bond they borrowed 98 cents to buy.”
Despite the Fed claiming the latest round of quantitative easing would continue until the jobless rate dips to 6.5 percent, there are several factors that would come along with it. For instance, if the unemployment rate fell because individuals exited the labor market then the Fed would still not raise interest rates or stop QE.
“The only variable is: how long can Ben Bernanke get away with lying and pretending there is no inflation? How much inflation can he create?” asked Peter Schiff Schiff in a Dec. 2012 video. “By expanding your balance sheet by over $1 trillion a year, that’s massive inflation that is the definition of inflation. He is inflating the money supply. Prices are going to rise in response to that. The question is: how long can he convince the world that prices aren’t rising, despite all the inflation he is creating?”
Video to be posted soon.