Fed's Lacker says still logical to expect rate hikes this year

[February 25, 2016]  By Jason Lange

BALTIMORE (Reuters) - Ongoing strength in the U.S. job market could give the Federal Reserve justification for multiple interest rate increases this year, Richmond Fed President Jeffrey Lacker said on Wednesday.

Nearly two months of falling global equity prices and mounting concerns over a global economic slowdown have fostered doubts that the U.S. central bank will raise rates anytime soon.

"I still think prospects for rate increases this year is the logical" view, Lacker said in a presentation to a business school in Baltimore, adding that economic data did not indicate that a recession was imminent in the United States.

Lacker, who is not a voting member of the Fed's policy-setting committee this year but participates in its discussions, said recent strong job growth suggested the U.S. economy was still on a solid growth path.

His remarks followed comments by Kansas City Fed President Esther George on Tuesday that the central bank should consider a rate hike at its March policy meeting. George is a voting member on the policy-setting committee.

The Fed raised rates in December, the first increase in nearly a decade, and issued economic projections that signaled it could hike four times this year.

Fed funds futures, however, currently suggest investors see virtually no chance of a rate hike in March and little chance of any increase this year.

Lacker said one reason to believe rates should rise is that estimates of the economy's so-called natural real rate of interest, the rate when economists think there will be normal economic growth and stable inflation, are at or just above zero.

"This perspective would bolster the case for raising the federal funds rate target," Lacker said.

Lacker and George are among the Fed policymakers who most urge an active fight against future high inflation.

Lacker argued against the view that inflation is expected to fall well short of the Fed's 2 percent target in the coming years, saying that an analysis of prices in financial markets suggests inflation is expected to average 1.9 percent in the period between five and 10 years from now.

Fed policymakers appeared divided at their last meeting in January when they held the benchmark interest rate at between 0.25 percent and 0.5 percent but discussed hiking rates as well as changing their views on the future policy path.

(Reporting by Jason Lange; Editing by Chizu Nomiyama and Paul Simao)

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