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Richmond Federal Reserve Bank President Jeffrey Lacker said Tuesday that market turbulence is grounds for a change in the federal funds rate only if it affects the inflation or growth outlook. "Financial market volatility, in and of itself, does not require a change in the target federal funds rate," he said. "Interest rate policy needs to be guided by the outlook for real spending and inflation." Lacker's remarks followed a meeting between Fed Chair Ben Bernanke and Senate Banking Committee Chairman Christopher Dodd at which Bernanke pledged to use "all available tools" to calm the markets. Last Friday, the Fed cut the discount rate on direct loans to banks but left the benchmark rate at 5.25%, where it has been for over a year. Lacker said he expects growth to come in "somewhat below its long-term trend" for 2007, and forecasts that "the drag from housing will continue for some time." He also warned that it is "still too soon to be confident that the moderation [in inflation] we have been seeing represents a downward trend."

Sources: Reuters, Bloomberg, MarketWatch
Commentary: Bernanke Prepared to Use 'All Tools' to Address Credit CrisisWhat Fed Bailout?Risk Aversion Remains Despite Fed Move; Treasury Yields Plummet
Stocks/ETFs to watch: DIA, AGG, SPY
Related: Full text of speech by Jeffrey Lacker to the Charlotte Risk Management Association

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Source: Fed's Lacker: Jumpy Market Insufficient Grounds for Rate Cut