Lacker: Further Fed easing would court inflation

CHANTILLY, Virginia (Reuters) - The Federal Reserve's last round of monetary easing pushed up inflation but failed to boost the economy, suggesting further stimulus would do more harm than good, a top Fed official said on Thursday.

Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond known for his hawkish stance, said factors keeping the economy soft in recent months were likely to abate, giving way to more rapid growth as the year progresses.

He also pushed back against speculation in financial markets that the Fed might need to embark on a fresh round of bond purchases to stimulate a still-ailing recovery and battered job market.

"The additional monetary stimulus initiated last November raised inflation and did little to improve real growth," Lacker told a gathering of business executives sponsored by the Dulles Regional Chamber of Commerce.

"Given current inflation trends, additional monetary stimulus at this juncture seems likely to raise inflation to undesirably high levels and do little to spur real growth," he said.

In his most recent policy pronouncement, Fed Chairman Ben Bernanke said the U.S. central bank was prepared to act if growth deteriorated much further. Still, Fed officials have signaled a preference for increased verbal assurances that interest rates will stay low for a long time rather than a return to bond buying, which has proven controversial.

Asked about the looming August 2 deadline for lifting the debt ceiling, which has raised the specter of a ratings downgrade or even a debt default, Lacker said he was still cautiously hopeful a deal would be struck.

Still, he added that if the crisis persists, the Federal Reserve could begin requiring greater amounts of Treasury securities as collateral for emergency loans to banks.

"We might need to reevaluate discount window haircuts on Treasury securities if it was warranted," Lacker said in response to questions from reporters.

Despite the country's debt woes, Lacker remained optimistic about the prospect of a continued economic expansion.

"I do not feel we face significant risk of growth much below (2.75 percent), or of an outright contraction," he said. "On the other hand, there is a possibility of an unexpected acceleration in growth to more robust rates"

U.S. gross domestic product grew just 1.9 percent in the first quarter, and the second quarter figures, due out on Friday, are expected to come in at 1.8 percent. Lacker said he expects inflation to average close to 2 percent in the year ahead.

(Editing by Andrea Ricci and Leslie Adler)