Inflation below the US Federal Reserve’s target should not keep the central bank from raising interest rates, Federal Reserve Bank of Richmond President Jeffrey Lacker said.
“Our objective is to keep inflation under control, so keep it averaging 2 percent,” Lacker said on Friday in an interview with Kathleen Hays on Bloomberg Radio.
“So to my mind, that doesn’t mean it has to cross two” before the Fed raises rates, he said.
Lacker does not vote on the Federal Open Market Committee this year. He will be a voting member next year.
In 2012, when he last was a voter, he dissented at every meeting as policymakers decided on a third round of asset purchases and pledged to keep interest rates near zero for more than two years ahead.
Fed policymakers are still grappling with inflation that has been below their 2 percent goal since April 2012, although they decided on Wednesday that there was enough momentum in the economy to justify concluding bond purchases this week.
“It wouldn’t surprise me to see softer inflation for a couple of months, but I think if you look a year out, I think we’ll be at 1.5 or higher,” Lacker said.
The Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose 1.4 percent in September from a year earlier, falling short of the central bank’s 2 percent target for the 29th straight month, US Commerce Department figures showed on Friday.
The core price measure, which excludes fuel and food, rose 0.1 percent in September from August and was up 1.5 percent from a year earlier, the report showed. Year-on-year gains have held at that level since May.
“Inflation is, I think, a key swing variable in the outlook” for when the Fed will raise its benchmark policy rate from zero, where it has been since 2008, Lacker said.
“The unemployment rate has continued to decline, and so I think that’s dramatically reduced the extent to which we ought to be sort of unhappy about labor market conditions and our employment mandate,” he said. “On the other hand, inflation has run below two for quite some time now, and the longer that goes on, the more you ought to focus on inflation.”
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