Lacker believes fed efforts will raise prices

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said the Federal Reserve's efforts to boost growth could increase inflation, because monetary policy is not the only factor holding back the economy from a recovery. Lacker said nonmonetary factors, such as a weak housing market or prospective tax rates, will restrain growth, and the central bank does not have the power to offset these components with easier monetary conditions for Americans.

In a speech delivered in Salisbury, Maryland, Lacker told attendees that if the Federal Reserve tries to add monetary stimulus to counter nonmonetary problems to the economy, the country will suffer higher inflation rates. Lacker's speech is in response to the Federal Reserve's decision last month to drop long-term interest rates through the sale of $400 billion worth of short-term Treasury securities to be replaced with longer-term bonds, Bloomberg reported.

Market News International reported Lacker will be a voting member of the Federal Reserve's Federal Open Market Committee next year. In his speech, Lacker called on other members of the committee to remain vigilant to prevent inflation from falling below 2 percent.

According to Bloomberg, Lacker does not agree with the decision to reinvest maturing housing debt into agency mortgage-backed securities either. Allowing the Federal Reserve to direct credit into some sectors of the economy and not others is inappropriate, he said.

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