Federal Reserve Bank of Richmond CEO Jeffrey Lacker dissented from the Federal Open Market Committee last week by becoming the only voting member to rule against more quantitative easing.
Lacker defended his position in a statement, saying the purchase of additional mortgage-backed securities on the Fed's part will create imbalances in investor activity.
"I strongly opposed purchasing additional agency mortgage-backed securities," said Lacker. "These purchases are intended to reduce borrowing rates for conforming home mortgages. Such purchases, as compared to purchases of an equivalent amount of U.S. Treasury securities, distort investment allocations and raise interest rates for other borrowers. Channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve."
The argument last week was that QE3 could spur along housing-related investor activity, but Lacker is not viewing the third round of easing in the same light.
Lacker in a statement says "unemployment does remain high by historic standards," but argues current economic conditions are caused by systemic conditions that monetary policy has failed to offset thus far.
He fears another round of easing – or QE3 – will lead to inflation without substantial improvements in labor market activity.
As Lacker said right after his dissent, he also believes keeping the federal funds rate low for a substantial period of time is a dangerous move for the Fed even as it tries to get the labor market back to full employment.
"I believe that such an implied commitment to provide stimulus beyond the point at which the recovery strengthens and growth increases would be inconsistent with a balanced approach to the FOMC’s price stability and maximum employment mandates," Lacker wrote.