Fed's Lacker Sees Economic Growth Accelerating in 2009
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Richmond Fed President Jeffrey Lacker (non-voter) said economic growth should pick up next year and that withdrawing the fiscal stimulus as growth risks fade makes "eminent sense".
Speaking at the National Economics Club of Washington, D.C., Lacker said the inflation outlook has "deteriorated", but that the Fed should still remain vigilant and try to limit a rise in inflation expectations.
"The apparent stability of inflation expectations does not justify complacency, however," he said. "Those expectations depend critically on confidence in how the Fed will tend to react to incoming data. Maintaining credibility depends on continuing to conduct policy in a way that is consistent with the stability of inflation expectations, and acting forcefully should those expectations erode."
In terms of growth, Lacker said the U.S. is growing at "only a tepid pace", but that the downside risks to growth have diminished substantially since the start of 2008. The Richmond Fed president said he sees only modest growth throughout the rest of the year, followed by a gradual pickup in 2009.
"While that uncertainty has not entirely disappeared, my sense is that such downside risks have diminished appreciably," he said.
Lacker said consumer spending has held up well throughout the turmoil, but warned it could drop off once the rebate cheques are spent.
He added that the weaker U.S. dollar has helped exports and was hesitant to call a bottom in the housing market, saying only that any recovery will be "exceedingly slow."
By Stephen Huebl and edited by Nancy Girgis
©CEP News Ltd. 2008
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