Fed's Lacker Says Recession Likely But Rate Cuts Won't Help

In an interview with the Wall Street Journal on Monday, Richmond Fed President Jeffrey Lacker (non-voter) said the U.S. economy is most likely in recession, but that monetary policy easing may not be the answer.

"It looks pretty likely that this is going to be declared a recession," Lacker said. "So far, this has been a mild slowdown, but some of the things I was apprehensive about earlier in the year are weakening," Lacker said, citing business investment, nonresidential construction and consumer spending.

Nevertheless, the Fed's current monetary stance is well-positioned and appropriate, the central banker said, who admitted to having been more concerned about inflation in previous months.

"The first half of next year, core inflation ought to settle down," Lacker said. "If it doesn't, that would be a definite flag for me."

He also said that a stabilization in home prices is the key to U.S. economic recovery and that the Treasury's $700 billion rescue plan should not be seen as a cure-all solution.

WSJ Article available at: http://blogs.wsj.com/economics/2008/10/06/richmond-feds-lacker-recession-yes-rate-cuts-no/

By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2008