Fed Official: Stimulus Plan Should be Reconsidered

JEANNINE AVERSA | AP Economics Writer

WASHINGTON (AP) – The Federal Reserve should "quite seriously" rethink whether its $600 billion bond-purchase program is needed given the strengthening U.S. economy, a Fed official said Tuesday.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said more spending by consumers and businesses means the economy probably will grow at a faster pace of around 4 percent this year, compared with 2.9 percent last year.

Inflation should stay in check, he said in a speech in Newark, Del. But rising prices for commodities, such as oil, need to be closely watched, he added.

Lacker participates in the Fed's policy discussions, although he isn't a voting member this year. Differing views from within the Fed about the size and pace of the bond program could make it harder for Fed Chairman Ben Bernanke to build consensus.

The Fed at its March or April meeting likely will the Fed will probably want to signal whether it will end the bond-purchase program on schedule in June or extend it. Any push to renew the program would likely face stiffer resistance. Some Fed members, including Lacker, might pressure Bernanke to scale the program back before June.

Two new Fed voting members this year – Charles Plosser, president of the Federal Reserve Bank of Philadelphia and Richard Fisher, president of the Federal Reserve Bank of Dallas have been skeptical of the Fed's bond-buying program. So has Lacker.

The Fed has said it will regularly review the program, announced in early November. It is intended to lower rates on loans and boost stock prices, spurring more spending and invigorating the economy.

"The distinct improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously," Lacker said.

One of the Fed's main reasons for launching the program is to lower unemployment. The jobless rate has fallen sharply – from 9.8 percent to 9 percent in the last two months. But it still remains high by historical standards.

Bernanke will provide a fresh assessment of the economy on Wednesday when he testifies before the House Budget Committee. Last week, Bernanke said the economy is improving, but he warned that it will still take "several years" for unemployment to drop back down to more normal levels.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.