The Federal Reserve Bank of Richmond president Jeffrey Lacker disagreed with the Federal Open Market Committee’s decision to continue the purchase of additional agency mortgage-backed securitization at a pace of $40 billion per month on Friday.
He suggested the Committee confine its purchases to Treasury securities. By titling the flow of credit on one particular economic sector, it runs the risk of raising inflation and destabilization of inflation, Lacker said in a statement.
"Purchasing agency mortgage-backed securities can be expected to reduce borrowing rates for conforming home mortgages by more than it reduces borrowing rates for nonconforming mortgages or for other borrowing sectors, such as small business, autos or unsecured consumer loans," he said.
The Federal Reserve announced rates will remained unchanged during the close of the FOMC meeting Wednesday.
"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the report said.
While Lacker stated it’s useful for the Committee to describe how its future actions will depend on the state of the evolving economy, monetary policy can only provide limited ability to reduce unemployment.
"Moreover, a single indicator cannot provide a complete picture of labor market conditions," Lacker said.
He added, "Therefore, I do not believe that tying the federal funds rate to a specific numerical threshold for unemployment is an appropriate and balanced approach to the FOMC’s price stability and maximum employment mandates."