Ex-Fed Official Lacker Warns Powell in ‘Tough Spot’ on Inflation

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Federal Reserve Chair Jerome Powell risks inflation getting out of control and his assurance that the central bank can keep it in check neglects to mention this would require traumatic surgery, said former Richmond Fed President Jeffrey Lacker.

“I think the Fed’s in a tough spot,” Lacker said Monday in an interview with Michael McKee, Lisa Abramowicz and Tom Keene on Bloomberg Television. “The danger that they face from this inflation surge — we have inflation on a six-month basis higher than it’s been since 1983 — the danger is that that persists.”

Powell argued that recent increases in inflation reflect disruptions linked to the U.S. economy reopening after the Covid-19 pandemic and are likely to prove transitory.

Lacker, now a professor at Virginia Commonwealth University, said he was glad Powell had used part of his speech on Friday to the Fed’s annual Jackson Hole symposium to assure Americans that the central bank had the tools to tackle persistently too-high inflation.

But that’s like “a doctor telling you that you have gangrene in your leg and don’t worry we have the tools to deal with it, but the tools are the amputation kit and they include a big saw,” he said.

Lacker was among the most hawkish U.S. central bankers during his 13 years at the helm of the Richmond Fed and dissented multiple times in favor of more restrictive monetary policy. He said his views were informed by early lessons from high inflation.

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“What we went through in the early 1980s to get inflation down was exceptionally painful, and that’s what motivated those of us who over time have advocated a more preemptive policy,” he said. “The Fed’s moved away from that in its strategy statement last year.”

Lacker was referring to a new policy framework announced by Powell at Jackson Hole in August 2020. 

Officials now vow to use policy to try to push unemployment down to levels previously thought unsustainable and commit to letting inflation overshoot their 2% goal by a bit — for a while — provided that longer-term inflation expectations remains well anchored. 

Powell on Friday said that longer-term inflation expectations “have moved much less than actual inflation or near-term expectations, suggesting that households, businesses, and market participants also believe that current high inflation readings are likely to prove transitory.” 

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