“The distinct improvement in the economic outlook since the (bond-buying) program was initiated suggests taking that re-evaluation quite seriously,” Lacker said in a speech in Newark, Del.
Lacker, viewed as being in the hawkish camp on the Fed, isn’t a voting member this year of the Federal Open Market Committee, which sets monetary policy and interest rates. He indicated last year that he was not in favor of the bond-buying program, which the FOMC approved as a backstop for the economic recovery.
Most Fed watchers don’t think the Fed is eager to alter its bond-buying program. Fed officials have said that they had a fairly high threshold for making changes.
A QE2 re-evaluation “will be challenging because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend,” Lacker conceded.
He also predicted that the economy would grow at close to a 4% rate in 2011. That would be fast enough to bring down the unemployment rate, he said.
His remarks are little more than a straw in the wind, because the FOMC is full of doves now, but it does indicate some worry about coming inflation. Needless to say, the possibility of stagflation is beyond the Fed's official ken.
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