U.S. Markets

Fed's Lacker says interest rates may have to rise more briskly

WASHINGTON (Reuters) - The U.S. Federal Reserve may have to raise interest rates quicker than markets currently predict should the Trump administration’s fiscal stimulus boost the economy, Richmond Fed President Jeffrey Lacker said in prepared remarks on Friday.

File photo: Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, participates in NABE Economic Policy Conference in Washington March 5, 2013. REUTERS/Yuri Gripas

“Monetary policy rates are likely to increase, and my view is that they may need to increase more briskly than markets appear to expect, depending on developments as the year unfolds,” Lacker wrote in a speech that due to a family emergency was delivered in Baltimore by another Richmond Fed official.

The U.S. central bank raised rates last month for only the second time since the 2007-2009 financial crisis, and predicted three rate hikes this year to keep apace with President-elect Donald Trump’s promises of tax cuts and increased spending.

Lacker is not a voting member on the Fed’s rate-setting committee this year but participates fully in its deliberations.

In his remarks, the Richmond Fed chief also forecast GDP growth of 2.0 percent in 2017, falling to 1.75 pct from 2018 onwards. He forecast that inflation this year would rise close to the Fed’s 2 percent target.

U.S. employment rose less than expected in December but a rebound in wages pointed to sustained labor market momentum, the Labor Department said in its closely-watched monthly jobs report on Friday.

Earlier this week, minutes from the Fed’s December policy meeting showed most policymakers felt the economy could grow more quickly under Trump and that, coupled with a low unemployment rate, may hasten higher inflation.

Lacker has repeatedly advocated a swifter pace of rate rises than many of his Fed colleagues in order to ward off possible inflationary pressures. He said last month that the Fed would likely need more than three rate hikes in 2017.

In Friday’s remarks, he once again warned against getting behind the curve on inflation.

“Greater fiscal stimulus implies higher interest rates than would otherwise be warranted,” Lacker said. “Otherwise, inflation pressures are likely to become elevated.”

Reporting by Lindsay Dunsmuir; Editing by Paul Simao