Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. economy may need much higher interest rates: Fed's Lacker

EconomySep 02, 2016 02:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, arrives at a session

By Jason Lange

RICHMOND, Va. (Reuters) - The U.S. economy appears strong enough to warrant significantly higher interest rates, Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday.

Lacker, who is not a voting member of the U.S. central bank's rate-setting committee this year, said he still favors raising rates sooner than later and that the Fed's last policy meeting in July would have been a "good time" to tighten policy.

Speaking to a group of economists in Richmond, Lacker argued that a range of economic analysis suggests the Fed's benchmark overnight interest rate - the federal funds rate - is currently too low.

"It appears that the funds rate should be significantly higher than it is now," he said in the speech.

He made his comments after the U.S. government reported a hiring slowdown in August that could effectively rule out a rate increase later this month.

While Lacker is not due to have a vote on policy until 2018, he does participate in discussions on interest rates. The Fed has appeared sharply divided between policymakers who favor rate increases soon and those who urge more caution.

Those favoring caution appeared to get a boost on Friday when a report showed 150,000 U.S. jobs were created last month, fewer than expected.

But Lacker said the weaker pace of hiring still left the job market on a strengthening path and the case for higher rates would only grow stronger unless job growth slowed "significantly in the months ahead."

He suggested there were increased risks in waiting to raise rates.

"The way the data is playing out I think the longer we wait there is a material increase in risks that we run," Lacker told reporters after his speech.

The Fed hiked rates in December for the first time in nearly a decade and has signaled since March that two rate increases could be in order this year. Fed Chair Janet Yellen said last week she thought the case for a rate hike had strengthened, but many investors have doubts the central bank will raise rates at all this year.

Lacker said he was concerned the economy could heat up enough for inflation to go above the Fed's 2 percent target, hurting the central bank's credibility. He said warning about prices "might not be fashionable" given that inflation has been below target in recent years.

But there is a risk the Fed will have to jack up rates quickly, triggering a recession, he said in his speech.

"It would be hard to calibrate policy settings carefully enough to avoid precipitating a contraction in real activity," Lacker said.

U.S. economy may need much higher interest rates: Fed's Lacker
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
siling phan
siling phan Sep 02, 2016 5:00PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Central Bank has no credibility!
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email