Fed's Lacker: Cautious Consumers Restraining Economic Growth

Friday, 01 Nov 2013 02:08 PM

 

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Federal Reserve Bank of Richmond President Jeffrey Lacker said consumer-spending growth probably can’t exceed a 2 percent pace as labor-market gains are offset by Americans still worried about spending and employment.

The probability of another deep recession is “bigger than we thought” and households are likely to continue managing their finances cautiously as a result, Lacker said in response to questions after a speech in Philadelphia. While the labor market has improved “pretty significantly,”

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Lacker said he’s “skeptical” about the prospects for a pickup in real gross domestic product growth.

“Consumers just have a much more apprehensive sense of the risks that a typical household faces in the labor market today, and I think that’s legitimate if you look back,” Lacker said.

“Consumers are looking after their balance sheets and doing what they can to make it align with their lifetime strategy.”

The Fed’s $85 billion a month in asset purchases to boost hiring are having a “modest” effect, and longer-term effects of the unprecedented easing are “highly uncertain,” Lacker said after a speech to the Global Interdependence Center.

The Fed said this week it will keep up the bond buying that’s pushed its balance sheet to a record $3.84 trillion until it sees more evidence that the economy will continue to improve. Even after federal budget cuts and tax increases, the economy and labor market still are showing “underlying strength,” policy makers said in their Oct. 30 statement after a two-day meeting in Washington.

Lacker, 58, doesn’t vote on policy again until 2015. He became president of the Richmond Fed in 2004 after five years as director of the regional bank’s research department.

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