The Federal Reserve should seriously consider pulling back on its $600 billion stimulus program given stronger growth and a brighter jobs picture, Richmond Fed President Jeffrey Lacker said on Tuesday.
Despite a report last week showing only 36,000 jobs were created in January, Lacker said other measures were pointing to a firmer economic recovery and better employment prospects.
An array of forward-looking indicators of employment trends point to continued labor market improvement, Lacker, a known inflation hawk, told a business gathering at the University of Delaware.
In November, the Fed launched a controversial bond-buying program to support a fragile recovery. Lacker noted the central bank had committed to regularly review the pace and size of purchases.
The distinct improvement in the economic outlook since the program was initiated suggests taking that reevaluation quite seriously, he said.
Lacker expects the U.S. economy, the world's largest, to expand by about 4 percent in 2011, a rate he said should be sufficient to boost hiring and lower unemployment.
The U.S. jobless rate fell to 9.0 percent in January from 9.4 percent in December. It has dropped 0.8 of a percentage point since November, the biggest two-month decline since 1958.
I'm not ready to stop (bond buys) right now, Lacker said during a panel discussion following his speech. But strong readings on jobs and sustained consumer spending would warrant a reevaluation, he added.
Fed Chairman Ben Bernanke made clear in remarks last week he does not consider progress on jobs sufficient to declare victory and begin withdrawing monetary support.
While many Fed officials consider inflation to be too low at the moment, Lacker reiterated his case that prices are actually low and stable. He told reporters that core inflation, which excludes food and energy and has been hovering at record lows, has probably bottomed.
Indeed, he said, it was still unclear whether recent spikes in commodities prices would have longer-lasting effects on U.S. consumer prices.
The effect on overall inflation could be transitory, or could persist if firms, encouraged by accelerating demand growth, pass input prices on to their customers, Lacker said.
Such pickups in inflation are common at this point in business cycle upturns, and would be consistent with the expected inflation rates implied by prices of inflation-indexed U.S. Treasury debt, he added.
Those readings now indicate traders expect inflation to average 2 percent over the next five years and as much as 3 percent over the following five years, Lacker said.
Some analysts blame the Fed's ultra-loose monetary stance for boosting financial market liquidity and helping to fuel runaway gains in commodities that have pushed up the costs of basic goods like food and energy.
Lacker said such charges were unfair.