Many have read the FOMC statement as virtually guaranteeing that the Fed will hold the funds rate near zero for at least another two years, but Lacker said that is not a valid interpretation. “I would note that it’s a fairly mild statement in the sense that it’s highly contingent,” he said... “I think that if the economic data come in differently than the Committee expected then I think that will provide the opportunity to alter the terms of that statement.”
“That statement isn’t so much a commitment as it is a forecast,” he added.
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Lacker said his main objection to the extended zero rate policy is directed elsewhere: “For me predominantly, it’s a matter of money creation and inflation.”
“We operate monetary policy by moving short-term interest rates around over the business cycle,” he explained. “We do that because what’s required to get the money supply right, to keep inflation low and stable, a lower interest rate is required when the economy is soft, and a higher interest rate is required when the economy is strong.” “If we get the interest rate wrong we’re going to get the money supply wrong, and that’s going to get inflation wrong,” he continued. “And that’s why we vary interest rates with economic conditions the way we do. People confuse that with providing stimulus and working to offset shocks to growth, positive or negative.”
“So for me the chief risk is that it creates the ingredients for an acceleration of inflation.”