Lacker says Fed rate hike could come before late 2014

WASHINGTON Fri Aug 3, 2012 9:05am EDT

Richmond Federal Reserve Bank President Jeffrey Lacker speaks during the Charlotte Chamber's Economic Outlook Conference in Charlotte, North Carolina December 19, 2011. REUTERS/Chris Keane

Richmond Federal Reserve Bank President Jeffrey Lacker speaks during the Charlotte Chamber's Economic Outlook Conference in Charlotte, North Carolina December 19, 2011.

Credit: Reuters/Chris Keane

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WASHINGTON (Reuters) - The Federal Reserve may need to raise official interest rates before late 2014, Richmond Fed President Jeffrey Lacker said on Friday, justifying his dissent against the central bank's latest decision.

The Fed left its monetary policy on hold this week, but sent a strong signal that it was considering another round of bond purchases if recent economic weakness persists.

Policymakers also reiterated their view that the Fed's benchmark overnight interest rate, currently near zero, would stay at those rock bottom lows until at least late 2014.

But Lacker, who has dissented at every meeting this year, stepped up his opposition to the date-specific forward guidance approach.

"I believe that exceptionally low federal funds rates are not likely to be warranted for this length of time," said Lacker, a prominent inflation hawk, in a statement.

"My assessment is that significant uncertainty regarding the evolution of economic conditions over the next few years makes the future path of interest rates difficult to forecast."

The statement was released just an hour ahead of the Labor Department's employment report for July. Another weak reading after a disappointing third quarter would likely tilt the Fed towards a third round of bond purchases or quantitative easing. Economists polled by Reuters forecast a gain of 100,000 jobs, below the level seen as needed to bring down the 8.2 percent jobless rate.

If the Fed does choose to deliver more stimulus, a decision that some analysts think could come in September, Lacker looks likely to continue dissenting.

"The Committee's statement implies more confidence about the persistence of low interest rates than I believe is justified by the current outlook," said Lacker.

He added that he would prefer using the Fed's existing quarterly economic forecasts, which as of recently include individual policymakers' estimates for the path of rates, as the primary way to telegraph the central bank's intentions to investors and the public.

(Editing by W Simon)

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