Bloomberg News

Fed’s Lacker Says Reaching 6.5% Unemployment May Take 3 Years

December 17, 2012

Federal Reserve Bank of Richmond President Jeffrey Lacker said it could take as long as three years for the U.S. unemployment rate to fall to 6.5 percent, the central bank’s threshold for an interest-rate increase.

Lacker also said the Fed’s decision last week to tie its outlook for borrowing costs to the jobless rate and to boost its monthly purchases of long-term assets will put a strain on its credibility. Lacker dissented against both decisions.

“It should be pretty clear that this committee is straining to provide as much stimulus as possible without endangering our price-stability credibility,” Lacker told CNBC in an interview. “My worry, and the reason I dissented on this and the asset purchases, is that we seem to be willing to test the very limits of that credibility.”

The Federal Open Market Committee on Dec. 12 decided to keep the main interest rate near zero as long as the jobless rate remains above 6.5 percent and the outlook for inflation stays at no more than 2.5 percent one or two years in the future. Unemployment fell to 7.7 percent in November from 7.9 percent in October.

“I see unemployment coming down” to the low 7 percent range sometime in 2014, Lacker said in the interview. “It could take a while to get down to 6.5” percent, he said.

The central bank also said last week it will keep buying $40 billion in mortgage bonds each month and will also purchase $45 billion in longer-term Treasuries a month after its Operation Twist Program expires at the end of December.

“When you make a test, sometimes it doesn’t come out right,” Lacker said.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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