Fed officials at odds on inflation threat

Mon Oct 17, 2011 10:06pm EDT
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By Ann Saphir

DETROIT (Reuters) - Fissures at the Federal Reserve over the correct course of future monetary policy were on display Monday, with one top policymaker calling for further easing even as another suggested tighter policy may be needed.

Jeffrey Lacker, the Richmond Fed's hawkish president, acknowledged that inflation is likely to ebb in coming months as pressures from high energy and commodity prices ease. But he warned that inflation remained a threat.

"My sense is that we should not be adding monetary stimulus at this point," Lacker said in response to questions from reporters. "A case could be made that withdrawing stimulus may be warranted soon."

Lacker, who was speaking in Salisbury, Maryland, rotates into a voting spot on the Fed's policy-setting panel next year.

Speaking in Detroit, Charles Evans, the Chicago Fed's dovish chief, said some temporary increase in inflation may be the price the nation must pay if Fed policy is to reduce joblessness.

The Fed should step up its campaign to boost what he called a withering economy with a vow to keep interest rates at zero until the jobless rate falls below 7 percent, Evans said.

If that does not work fast enough, the Fed should return to buying bonds to push down long-term rates, he said.

"Given how badly we are doing on our employment mandate, we need to be willing to take a risk on inflation going modestly higher in the short run if that is a consequence of policies aimed at lowering unemployment," said Evans, who has a policy-setting vote this year.   Continued...