Tuesday, May 10, 2011

Jeffrey Lacker Says Fed May Raise Rates By End Of This Year

In an interview with Reuters, Richmond Fed President Jeffrey Lacker said the Federal Reserve ought to be vigilant about inflation risks, like the European Central Bank is. He also said that the central bank may need to raise its rate by the end of this year.
Lacker told Reuters in an interview he was encouraged by the latest data showing a renewed willingness by U.S. employers to hire new workers, having created nearly a quarter of a million jobs in April....

He said any attempts to stimulate employment growth further through additional monetary stimulus would do more harm than good.

"We need to be careful that we don't let inflation overshoot," said Lacker, an inflation hawk. "Change in the policy stance before the end of the year is certainly conceivable in my mind."
He acknowledges that the core rate isn't showing much inflation, but he says that the early stages of a recovery can be accompanied by unforeseen inflation. For the record, Lacker opposed QE2.

This interview may be a trial balloon floated up, but Lacker hasn't had much influence on Fed policy recently. His words do confirm that the Fed is concentrating on employment data and the unemployment rate right now. My guess is that the Fed bigwigs have interpreted the recent spate of Fed-bashing as frustration over unemployment and little else; thus, they're shifting to what they consider to be a populist-friendly stance.

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