Fed Rate Must Not Be Low for Too Long: Lacker

The Federal Reserve must not forget about inflation as it battles recession, or leave interest rates too low for too long next year, policy-maker Jeffrey Lacker said on Monday.

“It is crucial that we not allow expectations of future inflation to ratchet higher during this recession,” the Federal Reserve Bank of Richmond President said in prepared remarks.

A copy of Lacker’s speech at the Hebrew University of Jerusalem was released to the media prior to delivery.

(Article continues below)

“As a recovery begins, the path of least resistance is often to hold the policy rate at a low level until it is completely clear that recuperation is complete.

“The risk associated with that path is that inflation may not moderate obediently during the downturn, and may firm with the ensuing recovery,” he said.

• A d v e r t i s e m e n t

Lacker, who will be a voting member of the Fed’s interest-rate setting committee next year, has earned a reputation as one of the U.S. central bank’s most hawkish policy-makers with a track record for warning on inflation.

Indeed, his comments differed in tone to the Fed’s last policy statement on Oct. 29, when it lowered interest rates by half a percentage point to 1.00 percent. In the statement, it stressed downside risks to growth remained and tamed its warnings on inflation.

Full article here