Fed’s Lacker Discusses Interest Rate Hikes, Monetary Policy in Carey Speech

Richmond Federal Reserve Bank President Jeffrey Lacker visited the Johns Hopkins Carey Business School on Feb. 25 and spoke about the various effects the central bank’s monetary policy plays on economic activity. 

In his address, delivered as part of the school’s Leaders+Legends speaker series, Lacker said the debate around the effectiveness of monetary policy is a “longstanding subject of inquiry in economics,” but one that is particularly relevant today. 

Click here to view a video of Lacker’s speech.

Lacker’s speech and the subsequent Q and A session (29:42) touched on a variety of topics; most notably, the central bank’s role in curbing inflation (6:29), his forecast for potential interest rate hikes in 2016 (45:57), the tradeoffs of tactics like quantitative easing (51:45) and credit allocation (10:04), and the notion that banks are “too big to fail” (30:20).

Overall, Lacker downplayed the role of central bank policy in spurring economic growth; instead pointing to other factors like technological advancements and human capital (4:07).

“That monetary policy has a significant, direct effect on economic growth (is) a presumption, I will argue, based on a misunderstanding of what monetary policy can and can’t do,” Lacker said, (2:31).

Later adding (28:48): “The role of the Fed is not to prevent every recession, or to soothe every instance of financial instability; nor is it in our power to do so. Central banks garner too much praise when times are good; and too much blame when times are bad.”

He did, however, cite the importance of the central bank in other areas of monetary policy, specifically inflation (29:14).

“Still, the Fed does have an important role to play in fostering economic growth. … In my view, the most important contribution central bankers can make to economic growth is low and stable inflation,” he said.

Regarding the possibility of interest rate hikes in 2016, Lacker said he believes there is still a solid case to be made for multiple possible hikes this year, citing factors like strong job and GDP growth.

Lacker’s address was covered by several media outlets including Reuters, The Baltimore Sun, and MarketWatch.