QE2 has its risks, needs to be monitored, Fed president says

Lacker pointed to the “unusually widespread” uncertainty about government policies as a drag on the economic recovery.

The massive rulemaking efforts under way to implement healthcare reform and the Dodd-Frank financial regulatory overhaul, as well as the uncertainty surrounding next year’s tax rates, produces “the recipe for continued apprehension and stifled risk-taking,” he said.

Despite these concerns, Lacker, like most Fed officials, struck a generally optimistic tone about the future of the economy in the long term, even as the recovery has been “sluggish.”

“I remain convinced that the fundamental economic prospects for the country are bright,” he said. “If we can make sufficient progress on the other major policy challenges we face, I believe we can restore confidence in rising living standards for generations to come.”

Consumers’ unusual reluctance to ramp up their spending in anticipation of future economic recovery is also slowing the recovery, Lacker said.

“In a typical recovery, consumers begin to see a brighter future ahead and are willing to ramp up spending ahead of anticipated gains in employment and incomes,” he said. “That hasn’t happened this time.”

Lacker will not be a voting member of the Fed’s Federal Open Market Committee until 2012.