NORFOLK, Virginia (Reuters) - The Federal Reserve will likely need to raise official interest rates next year to keep inflation at the Fed’s 2 percent inflation target, Richmond Federal Reserve Bank President Jeffrey Lacker said today.
Lacker, an inflation hawk who is a 2012 voter on the policy-setting Federal Open Market Committee and has dissented at all three meetings this year, said further monetary easing would do little to boost growth while leading to an undesired inflation spike.
“It would be quite hard to justify additional monetary stimulus, absent a dramatic deterioration in economic conditions, which I do not view as likely,” Lacker told the Economics Club of Hampton Roads.
Lacker said a depressed housing sector was a key factor holding back the economic recovery.
“A lengthy adjustment process in housing seems inevitable,” said Lacker, who opposed the Fed’s purchases of mortgage-related securities, arguing they crossed the line into fiscal policy.
The labor market is improving, said Lacker, and should continue to do so this year. He remains sanguine about the inflation outlook and anchored inflation expectations for now.
Still, he pushed back against calls for further Fed action.
“The impediments to growth ... are factors for which monetary policy is not the remedy,” Lacker said.
U.S. economic growth registered just 2.2 percent in the first quarter, weaker than economists had expected. But consumer spending proved robust, which Lacker took as an encouraging sign that recent job growth was boosting consumer confidence.
In response to the Great Recession, the Fed cut interest rates to effectively zero and bought some $2.3 trillion in Treasury and mortgage securities in an effort to keep down long-term borrowing costs.
Reporting by Pedro Nicolaci da Costa; Editing by Neil Stempleman