kept short-term interest rates near zero, an approach it said it will stick with for an “extended period

TO BE NOTED: From the WSJ:

"Lacker: No Rate Increases Until Growth Signals Clearer

Don’t look for the Federal Reserve to raise rates until signs of growth are clearer, Richmond Federal Reserve Bank President Jeffrey Lacker suggested in remarks to reporters Wednesday after addressing the North Carolina Senate Appropriations Committee.

Lacker

“I think growth is likely to warrant rates as low as they are now for some time. We’ll just have to wait to see how the growth process unfolds for some time,” Lacker said in a question and answer session with reporters.

The U.S. central bank has kept short-term interest rates near zero, an approach it said it will stick with for an “extended period.” Lacker told reporters that the phrase is a central bank term of art and “is not specific.”

Once growth turns positive, Lacker said the Fed has to begin considering tightening monetary policy, even if the unemployment level is still rising. While it might not move immediately, he said, “when the growth gets positive enough, you need to raise rates.”

“I think the growth process needs to govern our rate decisions and I think the growth process is more important in governing our rate decisions than the unemployment rate per se,” Lacker added.

In response to questions from North Carolina lawmakers, Lacker noted that credit markets anticipate a Fed rate hike sometime between year-end and the end of 2011, a broad range that he said reflects a sense that change isn’t likely until the economy perks up.

In addition to raising interest rates once the economy begins rebounding, Lacker said he thinks the Fed will need to reduce the size of its balance sheet, in effect unwinding investments in financial assets intended to stimulate the economy.

Lacker reiterated his opposition to proposals for the Fed to issue its own securities to drain liquidity from the market, saying, “I worry about the Fed bills’ proposal, I worry about giving the Fed the ability to use debt finance” or take on new powers in that area.

The Richmond Fed president also expressed concern about the Fed’s holdings of existing securities, saying he thinks the Fed “should avoid allocating credit to particular sectors,” including by investing in mortgage-backed securities."