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Jeffrey M. Lacker

Jan. 27, 2012

Richmond Fed President Lacker Comments on FOMC Dissent

Richmond, Va.

"The Federal Open Market Committee has recently taken a number of steps to enhance its transparency about monetary policy and improve its communication with the public. The economic projections we submit four times a year now include Committee participants' forecasts for the likely path of the federal funds rate under appropriate monetary policy. That is, each participant, given his or her views on how economic fundamentals are most likely to evolve, states how he or she believes monetary policy will need to respond in order to best fulfill our goals. After the meetings, when our projections are submitted, the Chairman's press conference provides further perspective on the Committee's thinking and its deliberations.

"The Committee has also provided forward guidance -- its expectations for likely future interest rates -- in the policy statements issued at the conclusion of the FOMC meetings. At the recent meeting that concluded on January 25, this guidance stated that the Committee currently anticipates that 'economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.'

"I dissented because I do not believe economic conditions are likely to warrant an exceptionally low federal funds rate for so long. I expect that as economic expansion continues, even if only at a moderate pace, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures. This increase in interest rates is likely to be necessary before late 2014.

"In addition, the Summary of Economic Projections (SEP) now contains detailed information on the forecasts of Federal Reserve governors and Reserve Bank presidents for the evolution of economic conditions and the federal funds rate under appropriate policy. My dissent also reflected the view that statements about the future path of interest rates are inherently forecasts and are therefore better addressed in the SEP than in the Committee's policy statement.

"My views on the economy and monetary policy were also discussed in a January 13, 2012, speech."

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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