Fed’s Lacker: Unknown Whether Shutdown Would Delay Decision on Bond Buying

A U.S. Federal Reserve official said Friday the partial government shutdown could slow the Fed’s assessment of the economy but couldn’t say whether it might delay a decision on the fate of the central bank’s $85 billion-a-month bond-buying program.

The shutdown, which began Tuesday, forced the Labor Department to cancel its scheduled release Friday of the September employment report–an important gauge for investors and Fed officials of the labor market’s health. With lawmakers gridlocked Friday over how to reopen the government, it was unclear how long the shutdown would continue and what other economic data releases might be delayed.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said the lack of a September employment report would hinder central bank officials’ ability to assess the recovery’s progress. But he said it was unknown whether that would cause the Fed to put off deciding when to start reducing its bond purchases. “I don’t know if it would have an effect one way or not,” Mr. Lacker told reporters after delivering a speech at a conference here.

“It doesn’t help. It will slow us down a bit” in understanding the latest developments in the U.S. economy, Mr. Lacker added. But he said that the lack of a September jobs report and other data reports might not be a “huge impediment.” He said that is because Fed officials don’t put too much weight into a single month’s data, considering that the data are often later revised. Mr. Lacker also said officials have access to a range of other data reports from the private sector, such as a closely watched manufacturing survey.

Mr. Lacker has been an opponent of the bond-buying program since it started a year ago as an effort to hold down long-term interest rates in an effort to spur hiring, spending and investment. During his speech here, he restated his position that he believes the Fed’s ability to boost the economy through monetary policy has “significant limits.”

Separately, Mr. Lacker cast doubt that the federal shutdown would deal a major blow to the U.S. recovery. He pointed out that while the economy would slow initially due to the furlough of 800,000 federal workers, it could get a boost in subsequent quarters if, as some observers expect, Congress approves retroactive pay for those workers.

“The direct economic effect is going to be a transitory one,” Mr. Lacker said.

But he noted that the shutdown could have a damaging longer-run effect, namely in the public’s perception of the effectiveness of the U.S. government.