Jeffrey Lacker Makes Ben Bernanke Look Like a Frightened B*tch
While Ben Bernanke is busy watching the dollar die, Richmond Fed President Jeffrey Lacker is in Virginia warning that the Fed is going to have to tighten policy before it feels comfortable to do so. Well it's good to know our favorite Fedhead still has his head screwed on straight, though this is certainly nothing new from the Fifth District.
Speaking to the Virginia House Appropriations Committee in Richmond, Lacker echoed the same cautious sentiments he's been making all along, saying "There is no doubt that we must be aware of the danger of aborting a weak uneven recovery if we tighten too soon. But if we hope to hold inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery." That means move while Bernanke's still staring at a dead dollar and Janet Yellen still has her thumb planted firmly up her ass waiting for "ideal" 2% inflation.
Lacker said he was gauging activity to decide when the Fed must tighten.
"I will be looking for a time at which economic growth is strong enough and well-enough established even if it is not yet especially vigorous," Lacker said.
Lacker said inflation is currently running at an "ideal" 1.5% rate.
But the economy is about to enter a treacherous time in terms of inflation expectations, he said.
"The historical record suggests that the early years of a recovery is when the risk is greatest that confidence in the stability of inflation erodes and we see an upward drift in inflation and inflation expectations," Lacker said.
And there is still that little commercial real estate problem to be addressed:
While the outlook has brightened in recent months, we still face major challenges. Commercial real estate construction is falling, vacancy rates are rising and falling property prices are eroding owners' equity positions. Holders of commercial-mortgage-backed securities have already taken sizeable losses, with more on the horizon as numerous projects are scheduled for refinancing. And some community banks have lent heavily to commercial real estate developers and are now facing rising delinquencies and losses. No one expects a quick reversal of these negative trends, and as a result, business investment in nonresidential structures is likely to be a substantial drag on U.S. growth in the near term. The outlook for commercial construction in Virginia is similar, though perhaps marginally better due to the stabilizing effect of demand for government and contractor office space around the District of Columbia.
Not to mention unemployment:
More worrisome is the extremely weak labor market. The number of people employed has fallen for 22 straight months. The unemployment rate has more than doubled, to a 10.2 percent rate. Wages are under pressure; so far this year average hourly earnings have only risen at a 2.1 percent at an annual rate, about half its rate in mid-2007. Going forward, as overall economic activity continues to improve, employment will bottom out and then begin to return to an upward trajectory. Even the more optimistic forecasters, though, do not expect a rapid improvement in national labor market conditions, and we will need to carefully monitor employment and earnings for an extended period.
All my money's on Lacker pissing off the spineless bitches chasing Bernanke's dollar death march at just about every FOMC meeting going forward but don't worry you little chickenshits, his vote is gone come 2010 and you know what that means - ZIRP til 2012 for all we care!
(My shorts and I are sincerely hoping we're betting correctly here that the Mayans were, in fact, totally right about that end of the world thing)
The full text of Lacker's speech may be found here.
Oh and reading between the lines, even my favorite Fedhead has no clue when to pull the plug on monetary stimulus. Hell, he admits as much in closing: "Although it is hard to predict when that will occur, I can confidently predict that economic policymaking, both for you and for me, will remain particularly challenging for some time to come."
Reassuring, homie, real reassuring. The only one with any sense over there doesn't even know when or how. So if you weren't convinced we were doomed before, consider this your final warning.