Fed’s Lacker: Economy Is Recovering Despite Weak Data - July 9 2010

More Federal Reserve propaganda to remember.

“The apparent spread of anxiety is a bit surprising if you look at just the data,” Lacker said.

Actually, if you look at real economic data and disregard all of the political and financial rhetoric from our leaders and mainstream media – the American people have every reason to be concerned.

When the actual unemployment rate exceeds 20% (‘discouraged’ workers counted) – there is no reason for optimism. I believe most Americans realize something is seriously wrong – they just don’t know what it is.

There are times when I wonder how these guys sleep at night. I think it’s because they no longer care about anyone or anything – except themselves.

jg – July 9, 2010

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July 9, 2010, 8:56 AM ET

Fed’s Lacker: Economy Is Recovering Despite Weak Data

Wall St. Journal

By Michael S. Derby and Meena Thiruvengadam

The recent spate of weaker economic data doesn’t mean the U.S. recovery is faltering, and the Federal Reserve continues to get closer to the time when it will need to raise interest rates, a top central bank official said Thursday.

“The economy is still growing,” Federal Reserve Bank of Richmond President Jeffrey Lacker told Dow Jones Newswires. While it’s true that “the risks of slower-than-average growth for a couple of quarter may be notched up a bit,” the official said “it’s important to remember recoveries are choppy and uneven in the early stages.”

Lacker was interviewed at a time of rising concern about the state of the U.S. economy. Persistently high unemployment and the widespread belief that growth is slowing–due in large part to uncertainty over major health-care and bank reforms in Washington and the threat posed by European economic and financial problems–are driving the anxiety.

Economists have reacted by pushing back their estimates of when the Federal Reserve will raise interest rates. Many forecasters now believe it won’t be until well into 2011 before the Fed raises rates from its current target of essentially zero percent.

Concerns about the economy have grown strong enough that economists are wondering if the Federal Reserve will have to take new steps to stimulate economic growth. Given that interest rates can go no lower, there’s speculation the Fed may have to restart its mortgage-asset program, or begin some other new effort to help support growth.

“The apparent spread of anxiety is a bit surprising if you look at just the data,” Lacker said. He noted that reports from early in the recovery bested expectations, while the recent period has brought slower-that-forecast numbers, which should surprise no one.

“This is a recovery that will be uneven, it’s going to be choppy,” Lacker said.

Lacker believes, like many other Fed officials, that the economy doesn’t yet need fresh support from the Fed. He put very low odds the Fed will come back into the market to buy mortgages, saying “I don’t think this is the time to shift gears again” and “we are a long way a ways from needing to think about starting up asset purchases again.”

Rate hikes aren’t imminent, but they are getting closer, the official said. “I have been saying that I am waiting for the time when growth is strong enough and well enough established that it will be clear we need higher rates,” Lacker said. “I don’t think we are there yet,” although he also said “we are getting to a time period where it’s going to be a more and more cogent question” as to when tighter policy will be required.

Lacker expects the economy to continue to grow around its trend-like pace of 2 3/4% to 3%, and said growth could accelerate in the future.

The official said the high unemployment rate — it was 9.5% in June — is hard to read right now given uncertainties about labor participant rates. Because of that, he’s focusing on monthly job creation. “I’m expecting employment growth in neighborhood of 200,000 or more a month by the end of the year,” Lacker said.

Lacker said the Fed must be vigilant about inflation, and that he expects the core inflation rate to gradually drift back toward 1.5%, as he noted the relatively stability of inflation expectations. He warned “we are capable of causing inflation when the unemployment rate is relatively elevated,” so the Fed must continue to monitor the situation closely.

When asked about regulatory reform, Lacker urged banking regulators to be explicit in explaining how they will exercise their discretion in aiding large failing firms. “Bank regulators need to spell out clearly what they intend the new regime to be,” he said.

The financial oversight bill “went a long way towards clarifying that there’s no intention to support equity holders in large financial institutions, but that’s not the issue. The issue is the short-term creditors–that’s the question that was left unanswered by this bill,” he said.

With constrained lending keeping a lid on economic growth, Lacker said he doesn’t expect credit availability to become tighter under the bill. While some provisions requiring tighter capital standards may prevent banks from boosting lending, “ultimately the availability of credit will be fine,” Lacker said.