U.S. Markets

Fed's Lacker says June the attractive option to hike rates

RALEIGH, N.C. (Reuters) - The Federal Reserve should raise interest rates in June, a top Fed official said on Tuesday, saying the U.S. economy is strengthening and that inflation will move back to the central bank’s target.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, participates in a session titled, "Help or Harm: Central Bank Monetary Policies at the Outer Limits" NABE Economic Policy Conference in Washington March 5, 2013. REUTERS/Yuri Gripas

“At this point, I think June looks like the attractive option” to raise interest rates, Richmond Fed President Jeffrey Lacker told reporters here. “The data could change that, but it would have to be surprising data for me.”

Lacker, who is a voting member on the Fed’s policy setting committee this year, said that going back a year, he believed the central bank should hike in the first half of this year, a stance he said that has only been affirmed by rapid U.S. economic growth that is moving at a sustainable pace.

The Federal Reserve has kept rates near zero since 2008 to stimulate the U.S. economy, which seen steady job growth and a drop in its unemployment rate. Fed officials have indicated that the central bank is targeting a mid-year hike, despite stubbornly low inflation readings.

Lacker has previously warned that the Fed needs to move sooner rather than later in raising rates.

U.S. Treasury bonds sank last week, in part after an unexpectedly strong U.S. jobs report on Friday that suggested to many investors the Fed was indeed ever closer to raising short-term rates. Benchmark yields were hovering near a one-month high early this week.

A veteran of the Richmond Fed since 1989, Lacker weighed in on the “Audit the Fed” movement that has re-surfaced on Capitol Hill, with Senator Rand Paul re-introducing the bill.

Several Fed officials, including Fed Governor Jerome Powell on Monday, have spoken out against the audit bill, saying that the Fed is already audited, and only its monetary policy decisions remain exempt.

“I think cooler heads will prevail ultimately, but it could result in pressure on us and the administration on a variety of fronts,” Lacker said, referring to whether the bill would move through the approval process.

“To my mind, if you look at the nuts and bolts of what it does, it facilitates high frequency harassment on our decision making - our monetary policy decision-making,” Lacker said.

Reporting by Michael Flaherty; Editing by Chizu Nomiyama