Fed's Lacker says he is confident inflation will return to 2 percent

Jeffrey Lacker testifies before the House Financial Services Committee hearing on "Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts" on Capitol Hill in Washington June 26, 2013. REUTERS/Yuri Gripas

PARIS (Reuters) - U.S. inflation is likely to accelerate in coming years and move toward the Federal Reserve’s 2 percent target, Richmond Fed President Jeffrey Lacker said on Monday, flagging upside risks to price growth.

Inflation has been unusually sluggish since the 2007-2009 recession.

The Fed has kept interest rates low in part to foster faster price gains and said last week it was likely to raise interest rates more slowly than policymakers had expected in December.

“The recent data on inflation - because they have come in firmer than expected - suggests that upside risks to inflation have increased maybe not significantly, but I think noticeably and materially,” Lacker said at a central banking conference at the Bank of France in Paris.

“We need to take that into consideration,” he said, adding that he expected core inflation firmer this year than last year and close to 2 percent in 2017.

The U.S. central bank said in its Wednesday policy statement that financial market-based measures of expected inflation were low.

“Although recent declines in inflation compensation do give me some pause, I think the evidence indicates that inflation expectations ... remain well-anchored,” Lacker said. He cited studies that suggest public expectations of inflation guide actual price changes.

Lacker, known as a hardliner on the Fed’s duty to keep inflation from running much above 2 percent, said U.S. inflation was bound to increase significantly after the price of oil bottoms out.

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

Reporting by Leigh Thomas in Paris; Additional reporting by Jason Lange in Washington; Editing by Richard Chang