What Do You Think the Chances Are that Jeffrey M. Lacker Is Right in 2015?

Jeffrey M. Lacker, sole dissenter from the Federal Reserve’s decision last week to keep the interest rates it controls unchanged:

I dissented because I believe that an increase in our interest rate target is needed, given current economic conditions and the medium-term outlook. Household spending, which has grown steadily since the recession, has accelerated in the last couple of years. Labor market conditions have steadily improved as well and have tightened considerably this year. With the federal funds rate near zero and inflation running between 1 and 2 percent, real (inflation-adjusted) short-term interest rates are below negative 1 percent. Such exceptionally low real interest rates are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets…

This is remarkable. This is remarkable, of course, because I cannot think of a single case since he became Richmond Regional Federal Reserve Bank President in 2004 in which any of Lacker’s dissents from the Federal Reserve have shown positive insight into the actual state of the economy.

Can anybody?

There is something very wrong with somebody whose views of the economy have been inferior to those of his colleagues ever single year since 2004–we are now talking twelve years running–and yet who continue to stubbornly think as he thought back then and dissent in the same way he would have dissented back then. Without ever giving any signs that twelve years of being wrong has induced any humility, or any attempts to mark his beliefs to market, or any rethinking of intellectual positions and ideological commitments at all…

Jeffrey M. Lacker: wrong in 2006: “Lacker’s vote was the solitary dissent in the August, September, October, and December 2006 Federal Open Market Committee (FOMC) meetings…”

Jeffrey M. Lacker: wrong in 2007:

Jeffrey M. Lacker (2007): The Economic Outlook: “As recently as its Aug. 7 meeting…

…the FOMC identified its ‘predominant policy risk’ as ‘the risk that inflation will fail to moderate as expected.’ I believe that this risk remains relevant…. Central banks should be careful to conduct policy during periods of financial market distress in ways that are consistent with their long-run goals, both for price stability and economic growth…. Federal funds rate adjustments in response to changes in the outlook for inflation and growth should continue to endeavor to stabilize inflation expectations…

Jeffrey M. Lacker: wrong in 2008:

Jeffrey M. Lacker (July 2008): The Economic Outlook: “Inflation is unacceptably high…

…Of course, price increases have been concentrated in the food and energy categories…. The risk is that elevated rates of increase in overall prices become embedded in expectations…. The apparent stability of inflation expectations does not justify complacency, however. Those expectations depend critically on confidence…. Maintaining credibility depends on continuing to conduct policy in a way that is consistent with the stability of inflation expectations, and acting forcefully should those expectations erode….

Just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well…. We need to be attuned to the risk that we emerge from the slowdown with inflation following a higher trend than when we went in. This danger associated with the persistence of elevated inflation warrants an additional measure of vigilance…

Jeffrey M. Lacker: wrong in 2009: “[He] dissented because he preferred to expand the monetary base by purchasing U.S. Treasury securities rather than through targeted credit programs…”

Jeffrey M. Lacker: wrong in 2012: “[He] does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014…”

Jeffrey M. Lacker: wrong again in 2012: “I don’t think there’s much that monetary policy’s capable of doing…. The real economy is beyond our ability to influence in large measure…”

September 19, 2015

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