Bloomberg News

Lacker ‘Nervous’ About Fed’s Independence With Fiscal Forays

January 12, 2012

Jan. 11 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said he is concerned how the central bank will be treated in the 2012 elections.

“I haven’t seen as much threat to our independence in my career here as we’ve been seeing in the last couple of years,” Lacker said today in an interview on CNBC. “I’m a little nervous about how the Fed’s going to be treated in this electoral cycle.”

Fed Chairman Ben S. Bernanke and the central bank were criticized by Republicans this week for a housing study sent to Congress that, in the words of Senator Orrin Hatch of Utah, “intrudes too far into fiscal policy advice and advocacy.”

Hatch, the senior Republican on the Senate Finance Committee, was joined in his criticisms by Tennessee Senator Bob Corker, who said New York Fed President William C. Dudley’s suggestion last week that Fannie Mae and Freddie Mac reduce the principal of the loans they guarantee was “absolutely egregious.”

When asked about the Fed’s housing paper, Lacker said that “we have to be really careful because of our special independence.”

“When the central bank strays into fiscal policy it gets itself entangled in politics,” he said.

The flareup over the housing paper comes amid a Republican presidential primary in which almost all candidates have called for an end to Bernanke’s tenure at the central bank.

Paul, Perry

Former Massachusetts Governor Mitt Romney, Texas Governor Rick Perry, former Speaker of the House Newt Gingrich and Congressman Ron Paul of Texas all indicated they’d appoint a new Fed leader if they won the presidency in 2012. Bernanke’s term as Fed chief ends in January of 2014.

Lacker said he didn’t expect the election to result in the end of the central bank, as Paul has proposed.

“I think cooler heads will prevail before we get a bill to abolish the Fed,” Lacker said.

The economy will probably grow around 2 percent to 2.5 percent in 2012, and the inflation rate will be around 2 percent, Lacker said.

“Some of the more persistent headwinds the economy is facing are more serious than we thought,” Lacker said. “I think we’ll make more progress on unemployment, but it’s likely to be slow.”

Lacker, 56, votes on monetary policy in 2012 as part of the rotation among Fed bank presidents. He is a former head of research at the Richmond Fed and became president of the bank in August 2004.

--Editors: Chris Wellisz, Carlos Torres

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Kevin Costelloe at kcostelloe@bloomberg.net


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