Fed's Lacker: Low Rates Appropriate for Now

U.S. interest rates are appropriately low now while economic slack is being taken up after a downturn but that will change in coming years, the president of the Richmond Federal Reserve Board cautioned.

In an interview on a West Virginia television show called "Decision Makers" that was conducted last week but only posted on the Richmond Fed's website late on Wednesday, Jeffrey Lacker said the Fed wants to keep inflation in check.

"At times like this when there is a lot of unused resources in the economy it is a time when you want interest rates low," Lacker said.

But he told the interviewer that the economy was strengthening and that, a year from now, more jobs and higher levels of activity are almost assured. That means policy makers must be alert to inflation risks.

"Interest rates are definitely going upward in the next couple of years. The outcome we'd like to achieve is one where inflation doesn't go up from" where it is now, Lacker said.

"I think we are capable of accomplishing that."

Lacker, widely viewed as an inflation hawk, is not a voter on the Fed's policysetting Federal Open Market Committee this year. He said that he expects the housing market to recover slowly, and that it could take several years for the unemployment rate to fall to 5 or 6 percent. The unemployment rate is currently 9.7 percent.