Jeffrey Lacker, president of the Richmond Fed, is a voting member of the FOMC and a card-carrying hawk on matters of inflation. So when he warns that monetary policy faces new hurdles, our ears perk up. As we’ve been discussing, minting money is easy.;taking it away is something else. The hazards on the latter have rarely been higher at this juncture. At a talk a few days back at the College of Charleston, Lacker summarized the approaching task on soaking up the massive liquidity that’s now in the system, albeit much of it sitting idle for the moment:
“Whether it has an inflationary impact or not depends on our skill at the Federal Reserve in withdrawing the stimulus in a timely way when the economy begins to recover. That is a very delicate, very hard policy…The economy when it recovers is spotty…Inevitably, we face this dilemma. Do we keep policy easy and stimulative because of the sectors that are lagging behind in this recovery or do we get ahead of the curve…it is going to be a tough call.”
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