Lacker: Fed may hike before jobless rate falls

Richmond Federal Reserve Bank President Jeffrey Lacker attends a conference at Hebrew University in Jerusalem in this November 3, 2008 file photo.

NEW YORK (Reuters) - The jobless rate does not have to start falling before the Federal Reserve starts tightening monetary policy, a top Fed official said on Thursday.

Jeffrey Lacker, president of the Richmond Federal Reserve Bank, told Bloomberg Radio that he places more weight on the outlook for economic growth, and in particular, consumer spending.

"I don't think it's a show stopper if the unemployment rate hasn't started falling," Lacker said, reiterating similar comments he made in August.

But the Fed needs to look for growth to establish itself firmly before raising interest rates, he said.

The Federal Reserve aggressively slashed its benchmark federal funds rate to near zero last year and put in place a vast array of emergency support programs as it battled a deep recession.

Some Fed officials, including Governor Kevin Warsh, have argued that once the Fed decides to tighten policy, the pace of interest-rate hikes could also be swift.

"I think there is something to that, but we'll have to judge as the data comes in," Lacker said. "The question of timing and pace, that is a big open question."

The Fed has the tools it needs to shrink its balance sheet, Lacker said. He also noted the Fed's ability to tighten even with a large balance sheet by paying interest on reserves.

"We want to think about doing both ... How we time those out, how we stage those, I think that's for future work," he said.

Inflation expectations are well-anchored, he said.

Lacker said he had been heartened by recent data on consumer spending, but added that it will take months before it is clear whether the consumer spending recovery is a trend.

That said, the risk of double-dip recession -- in which the economy falls back into recession after a brief recovery -- has "diminished quite substantially."

(Additional reporting by John Parry; Editing by Jan Paschal)