The Fed: Fed’s Lacker calls for ‘significantly higher’ interest rates

Bloomberg

Jeffrey Lacker, president and chief executive officer of the Federal Reserve Bank of Richmond

Significantly higher interest rates are warranted, a Federal Reserve official said Tuesday in comments that reflect the breadth of debate at the central bank.

Richmond Fed President Jeffrey Lacker, who is retiring and isn’t a voting member of the Federal Open Market Committee, said that almost all policy rules are recommending higher interest rates. The Fed currently targets its federal funds rate between 0.5% and 0.75% after making two hikes in a decade.

“Taking the range of plausible alternatives into account, my view is that, with unemployment at or below levels corresponding to maximum sustainable employment and with inflation very close to our announced target of 2%, significantly higher rates are warranted,” he said.

The risk of waiting is that an unanticipated rise in inflation pressures will rise, which in turn will force a quick increase in rates, he said. “Such rapid adjustments can be hard to calibrate, and they heighten the risk of overdoing it and sending the economy into an unnecessary recession,” he said.

Lacker has consistently been at the hawkish end of the Fed spectrum with respect to interest rates.

The market will put more attention on the comments of Federal Reserve Chairwoman Janet Yellen, who is speaking before the Senate Banking Committee on Tuesday. The Fed’s last dot plot suggested three interest-rate hikes in 2017.

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