Dueling views on the outlook for inflation and U.S. monetary policy by two top Federal Reserve officials on Friday underscored divisions at the central bank as it nears the end of a controversial stimulus program.
In comments that reflect the majority view at the Fed — including Chairman Ben Bernanke — Atlanta Fed President Dennis Lockhart said it was unlikely that recent spikes in commodity costs will lead to runaway increases in prices.
“With longer-term inflation expectations remaining stable — and predicting that commodity price growth will stabilize — my view is that current monetary policy is appropriate,” Lockhart told the Knoxville Economics Club in Tennessee.
Richard Fisher, president of the Dallas Fed and a self-proclaimed inflation hawk, took a divergent view, saying that prolonged easy monetary policy could compound what might otherwise be transitory inflationary pressures.
Warning of “unpleasant” U.S. inflation data ahead, Fisher called on the U.S. central bank to stop “spiking the punch bowl” with more accommodative policy and said the Fed may even need to end its $600 billion bond-buying program early.
“No amount of further accommodation by the Fed would be wise,” he told the Society of American Business Editors and Writers in Dallas. “Indeed, it may well be that we should consider curtailing what remains of QE2,” he said, referring to the Fed’s second round of quantitative easing, which is slated to end in June.
The prices of oil and other commodities have spiked, sparking inflation fears, hit by both strong demand from rapidly growing emerging economies and fears of supply disruptions amid a wave of pro-democracy protests in the Middle East and North Africa.