Ongoing Housing Problems to Keep Growth Weak, Fed's Lacker Says

Richmond Fed President Jeffrey Lacker said Wednesday he was "uncomfortable" with the country's inflation picture and also forecast "very weak" economic growth into next year as housing weakness continues. "Most cogent risks to the outlook are on the downside," Lacker said at the Charlotte (North Carolina) Chamber of Commerce's Annual Economic Outlook Conference. "Home construction and sales are unlikely to bottom out before the middle of the year, and I expect housing to continue to be a drag on growth well into 2008." Further into the year, however, he expected an improvement, predicting 2.2% economic growth. As for inflation, Lacker said he was "disappointed" the improvement seen earlier this year wasn't longer lasting. The inflation picture, he said, had "deteriorated" due to high energy prices. "Because the job of a central banker is to protect the purchasing power of currency, it is overall inflation that we need to keep down, not just core inflation," Lacker said. "If energy prices fail to decline, monetary-policy decisions will be that much more difficult in 2008."

Sources: Bloomberg, Wall Street Journal

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