Tags: Fed | Lacker | rates | hike

Richmond Fed Chief Lacker: US May Be Forced to Hike Rates by Mid-2013

Friday, 27 Apr 2012 07:30 AM

Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday he believes the U.S. central bank will have to raise interest rates in mid-2013, not late 2014 as suggested in this week's policy decision.

For a third meeting running, Lacker was the lone dissenter against the Fed's calendar-linked interest rates guidance.

"I dissented because I do not believe economic conditions are likely to warrant an exceptionally low federal funds rate for this length of time," Lacker said.

Editor's Note: Obama’s Last-Ditch Effort to ‘Fix’ America Will Cause the Unthinkable

"My current assessment is that an increase in interest rates is likely to be necessary by mid-2013 in order to prevent the emergence of inflationary pressures."

That was more specific than his March dissent, when Lacker stated an increase in the benchmark federal funds rate, now set in a zero to 0.25 percent range, would be required "some time in 2013."

The central bank left monetary policy on hold this week, and did little to settle the score on whether another round of monetary stimulus is likely.

Fed Chairman Ben Bernanke, in a press conference after the decision, left all options on the table, but also made clear that the bar is high for any new measures. He indicated growth and employment would have to weaken considerably for the Fed to consider additional steps.

Lacker, an inflation hawk, has long been skeptical of the ability of monetary policy to boost employment substantially. Apart from internal opposition, Fed purchases of government bonds have proven politically controversial, both domestically and abroad.

U.S. inflation is largely tame at the moment despite upward pressure from energy costs that the Fed believes will prove temporary. The central bank's preferred measure of inflation has not wandered far from the 2 percent explicit target the Fed announced in January.

Lacker is a voter on the policy-setting Federal Open Market Committee this year, but not in 2013.

"At the end of the day, there is still not enough consensus inside the Federal Reserve for any major decisions to be made," said Kathy Lien, director of research at GFT Forex in Jersey City, New Jersey.

U.S. economic growth remains tepid, but a recent decline in the unemployment rate to 8.2 percent appears to have lessened the appetite for further stimulus, even among those Fed policymakers who seem most alarmed by high unemployment.

The U.S. job market has made up less than half the nearly 9 million jobs that vanished during the Great Recession.

In response to the downturn, the Fed not only slashed borrowing costs to rock-bottom levels but also more than tripled its balance sheet through purchases of some $2.3 trillion in mortgage and government securities.

Editor's Note: Obama’s Last-Ditch Effort to ‘Fix’ America Will Cause the Unthinkable

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2012-30-27
Friday, 27 Apr 2012 07:30 AM
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