MacroScope

Fed taxonomy: Lacker is a hawk, not a bull

September 2, 2013

Not to mix too many animal metaphors but, generally speaking, monetary policy hawks also tend to bulls on the economy. That is, they are leery of keeping interest rates too low for too long because they believe growth prospects are stronger than economists foresee, and therefore could lead to higher inflation.

That is not the case, however, for Richmond Fed President Jeffrey Lacker, a vocal opponent of the central bank’s unconventional bond-buying stimulus program, particular the part of it that focuses on mortgages. He reiterated his concerns last week, saying the Fed should begin tapering in September by cutting out its mortgage bond buying altogether.

But when I asked him whether upward revisions to second quarter gross domestic product reinforced his case, Lacker was surprisingly skeptical of forecasts for a stronger performance in the second half of the year.

You look through the last couple of quarters and the last couple of years back to 2009 – we’re getting 2 percent growth on average. The kind of noteworthy thing is the softness in disposable income. The savings rate’s going down. People who have been projecting an acceleration of growth had been thinking that the decline in the savings rate was going to do it. But this is steady consumption growth, and a decline in disposable income growth. So I just don’t see where an acceleration of growth is going to come from. I think growth is likely to average about 2 percent going forward.

That puts him well below the median ‘central tendency’ forecasts published quarterly by policymakers, which as of June projected growth between 3 percent and 3.5-percent for next year.

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