NEW YORK – Relying on a slowing economy to stem price increases would be a mistake, Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, yesterday told the Money Marketeers at New York University, according to Bloomberg News.
“It is central banks, not the labor market, that drive inflation down,” he said in his speech. “Clear communications accompanied by consistent actions could bring about a relatively prompt and low-cost reduction in inflation.” His views contrast with those of other Fed policymakers, including San Francisco Fed President Janet Yellen, who a month ago said “a modest amount of slack” in the labor market would suffice to bring inflation down, Bloomberg said.
Lacker is a non-voting member this year of the Federal Open Market Committee, whose duties rotate among Fed officials. At the FOMC’s last four meetings last year, he cast the sole vote in favor of raising the key overnight lending rate, but he told reporters yesterday that he is “comfortable,” for now, with the current rate of 5.25 percent.
Lacker added, however, that “many commentators base their belief that inflation will moderate on their belief that output growth will be below trend for the next few quarters,” an outlook he said is based on an “incomplete” understanding of the relationship between inflation and growth.
