Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. central bank probably will need to raise interest rates next year to contain inflation as the economy accelerates.
“My current assessment is that an increase in interest rates is likely to be necessary some time in 2013,” Lacker said in a statement on the Richmond Fed’s website. He explained why he opposed the Federal Open Market Committee’s March 13 statement that economic conditions are likely to warrant “exceptionally low” levels of the federal funds rate at least through late-2014.
“The economy is expanding at a moderate pace, and inflation is close to the committee’s 2 percent objective,” Lacker said. “As the expansion continues, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures.”
Lacker’s opposition this week was his second straight dissenting vote. He said in a Jan. 27 statement after that month’s FOMC meeting that interest rates may need to rise before late 2014 to prevent an increase in inflation. Chairman Ben S. Bernanke has been unable to forge unanimity on the committee since June, as the panel’s decisions drew objection from policy makers both in favor and opposed to more stimulus.
“I dissented because I do not believe economic conditions are likely to warrant an exceptionally low federal funds rate for this length of time,” Lacker said in today’s statement.
The central bank has kept its target overnight interest rate in a range of zero to 0.25 percent since December 2008. In January, it extended its low-rate commitment from a previous date of mid-2013.
Lacker, 56, became a voting member of the FOMC in January as part of a rotation among the Fed’s 12 regional presidents. He became president of the Richmond Fed in 2004 after five years as director of the regional bank’s research department.
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