The Fed president repeated his criticism of purchases of mortgage backed securities as a “credit market intervention” that improperly favors one industry, housing, over others such as small businesses.
In addition, purchasing mortgage securities may encourage a continued reliance on a government-sponsored agencies, when “the housing sector would be better served by a new model that relies less on government credit subsidies,” Lacker said.
Chicago Fed President Charles Evans has proposed holding interest rates near zero until unemployment falls to 7 percent so long as inflation does not breach 3 percent. Minneapolis Fed President Narayana Kocherlakota has suggested continuing with zero rates until unemployment falls to 5.5 percent so long as inflation remains below 2.25 percent.
Other Fed presidents have been critical of the idea. Philadelphia Fed President Charles Plosser last week said thresholds could “create more confusion than clarity,” while St. Louis Fed President James Bullard said last month that tying policy to unemployment “is a mistake” because the jobless rate doesn’t necessarily give a complete measure of the labor market’s health.
Lacker didn’t comment on the U.S. economic outlook in his prepared remarks. Additional bond purchases may complicate an eventual exit from record stimulus and risk a surge in inflation, Lacker said last week in Charleston, West Virginia.
Lacker, 57, has been president of his regional bank since 2004. He was previously the Richmond Fed’s director of research.