Fed’s Lacker: Rate Increase Likely Needed in 2013

The only member of the Federal Reserve’s policy-making committee to disagree on keeping the federal funds rate at near zero said a rate increase would likely be necessary sometime next year.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, did not agree with his colleagues this week when they met and maintained the benchmark interest rate at zero to .25 percent “at least through late 2014.”
The Federal Open Market Committee has kept that posture since late 2008, the peak of the financial crisis.
“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 a statement today.
The FOMC committee said it expects moderate economic growth over coming quarters, with a gradually declining unemployment rate.
“The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate,” the Fed said in its customary statement following its meeting.
The Fed’s dual mandate is maximum employment and stable prices.
Lacker was the only dissenter, the Fed statement said.
“The economy is expanding at a moderate pace, and inflation is close to the Committee’s 2 percent objective,” Lacker said today. “As the expansion continues, the federal funds rate will need to rise in order to prevent the emergence of inflationary pressures.”
The “forward guidance” is meant to represent the Fed’s best timing for a change in the key interest rate, he said.
“My current assessment is that an increase in interest rates is likely to be necessary some time in 2013,” Lacker said.

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