Tags: US | Fed | Lacker

Fed's Lacker: Recovery Must Be Rooted Before Rate Hikes

Friday, 15 Jan 2010 02:09 PM

The economic recovery needs to be firmly rooted before the central bank reverses course and begins to raise interest rates, a Fed official said Friday.

The comments by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, are especially interesting because Lacker has a reputation for being an inflation "hawk."

Hawks worry more about super-low borrowing costs and other special support stoking inflation, while "doves" worry more about rising unemployment.

Lacker said he will be "looking for the time at which economic growth is strong enough and well-enough established" as a precursor to boosting the Fed's key bank lending rate, now at a record low near zero.

For now, the weak labor market is a main threat to the recovery. The unemployment rate stands at 10 percent and is likely to move higher. The recession has wiped out 7.2 million jobs.

Deciding when to raise rates will be the biggest challenge facing the Fed. Boosting them too soon could derail the budding recovery. But waiting too long could unleash inflation.

Fed Chairman Ben Bernanke and many of his colleagues believe that sluggish recovery will keep inflation under control in the months ahead. That will give the Fed leeway to keep holding rates at a record low when it meets next on Jan. 26-27 and well into this year, economists predict.

The risk that the fragile economy could lead to a period of a dangerous and widespread decline in prices seems to have "diminished substantially at this point," Lacker said.

Still, Fed officials will need to closely track inflation, which is likely to creep higher, he added.

Lacker made his comments in a speech to a local chapter of the Risk Management Association in Richmond.

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The economic recovery needs to be firmly rooted before the central bank reverses course and begins to raise interest rates, a Fed official said Friday.The comments by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, are especially interesting because...
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2010-09-15
Friday, 15 Jan 2010 02:09 PM
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