A Blast From the Past With Richmond Fed's Lacker
My favorite Fedhead has been quiet lately (resting up after going on that campaign to save the Fed's ass, surely) so in the interest of giving JL some face time (and rubbing in the fact that he got it wrong), let's revisit this February 2008 statement on the possibility of a mild recession.
If I need to jog your memory, Bear Stearns went down just a month later and by fall of that same year, we were in full-on panic mode. By December, the Fed had cut interest rates to zero where we - obviously - remain to this day. Just in case you needed the refresher.
Reuters (Feb 6th, 2008):
In an unusually sobering assessment, Richmond Federal Reserve Bank President Jeffrey Lacker said he thought the most likely outcome would be continued sluggish growth, as long as the job market did not sputter.
"I can also see the possibility of a mild recession, similar to the last two we have experienced -- in other words, shallow and with a short recovery," he told a banking group.
"If job growth is positive in the months ahead, and if wages can stay ahead of inflation, then income growth should be sufficient to support consumer spending gains and allow us to skirt the boundary of recession," he said.
Lacker, who is not a voting member of the Fed's policy-setting panel this year, said he took into account the risk of recession as he considered policy last month. The U.S. central bank cut interest rates by an aggressive 1.25 percentage points in January.
Lacker said on Tuesday more rate cuts may be necessary to hold off a downturn.
"The prominence of downside risks means that further easing ultimately may be warranted," Lacker said.
However, he added that if economic indicators are not weaker than expected over the next several months, "it's not clear further rate cuts would be warranted."
Unusually sobering assessment? Please, Lacker was my #1 supplier of recession porn in 2009, providing endless amounts of doom and gloom to feed my fixation.
By July, Lacker was pulling the inflation alarm and saying the Fed should hurry up and jack up rates before things get out of hand. Again, I think we all know how that turned out (to put things in perspective, Lehman was allowed to fail on September 15, a mere two months after this speech).
Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank should consider raising interest rates to limit inflation as the threat of a steep economic slump begins to fade.
``Just as easing policy in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well,'' Lacker said today in a speech to the National Economists Club in Washington.
``I expect growth to be positive but quite modest for the rest of this year, and to gradually pick up over the course of next year,'' Lacker said. ``Although downside risks to growth are by no means negligible, they have diminished significantly to my mind since the beginning of the year.''
It's cool, Jeff, I still love you.