Richmond Federal Reserve President Jeffrey Lacker said on Tuesday that U.S. inflation has bottomed out and is moving toward its target, with economic growth continuing at a moderate pace.
Lacker said subdued productivity growth, moderate consumer spending and a tempered expansion in housing construction will likely keep U.S. growth at between 2 percent and 2.5 percent in the near term - below his earlier forecast of something over 3 percent.
While Lacker, a policy hawk who has advocated for a faster withdrawal of monetary stimulus, was cautious on his economic outlook, he pointed to the threat of rising inflation.
By expanding its balance sheet, the Fed has flooded the banking system with reserves, he said at an event in Charlotte, North Carolina.
Lacker said that at some stage, the economy will have improved enough that banks could increase lending substantially, leading to rapid deposit growth and mounting inflationary pressures.
"In order to prevent those pressures from emerging and to keep inflation averaging 2 percent, we will need to begin withdrawing monetary stimulus at the appropriate time. One way to do that is to begin raising interest rates," Lacker said.
The Richmond Fed's president, who is not a voting member on the Federal Open Market Committee this year, said that inflation has averaged 2.5 percent over the last three months.
(Reporting by Michael Flaherty; Editing by Paul Simao)