Lacker says incoming data harden view for June Fed rate rise

[NEW YORK] The Federal Reserve should raise interest rates in June on the basis of stronger US data, said a senior policy maker who has sought tighter monetary policy in the past.

"At this point, raising rates in June looks like the attractive option for me," Federal Reserve Bank of Richmond President Jeffrey Lacker told reporters on Tuesday after a speech in Raleigh, North Carolina. "Data between now and then may change my mind, but it would have to be surprising data." Mr Lacker voted in favor of a Federal Open Market Committee statement last month assuring investors it would be "patient" in raising rates held near zero since December 2008. The last time he was a voting FOMC member, in 2012, he dissented at every meeting in favor of less accommodative policy.

"The economy is clearly growing at a more rapid, sustained pace than it was a year ago," Mr Lacker said. "Evidence has continued to accumulate on that. Economies that are growing faster need higher real interest rates." Recent data have "solidified my views" on a June liftoff for interest-rate increases, he said.

Asked when the Fed should remove its promise to be patient, Mr Lacker said that "we would have to proceed accordingly with our statement ahead of time" to change the guidance.

Fed Chair Janet Yellen, in a press conference following the December FOMC meeting, said the phrase meant the committee was unlikely to move rates in its subsequent two meetings. That indicates dropping the phrase at the March 17-18 FOMC session if it intends to raise rates in June.

San Francisco Fed President John Williams separately told the Financial Times that the Fed was getting "closer and closer" to rate liftoff, citing "really strong" hiring.

US unemployment stood at 5.7 per cent in January, compared to a post-recession peak of 10 per cent in 2009, while payroll gains averaged about 336,000 over the last three months, the strongest since a comparable period ended in November 1997.

While making progress on its goal for full employment, plunging oil prices have kept inflation well under 2 per cent, which the Fed targets as price stability under its dual mandate from Congress.

The central bank's preferred gauge of price pressures rose by 0.7 per cent in December compared with the same month a year earlier. Ms Yellen has said officials should be "reasonably confident" inflation is heading higher before raising interest rates this year.

Mr Lacker said he was looking through the immediate impact of low oil prices on inflation and household spending.

"Gas prices aren't affecting my thinking very much at all about what we need. The effect on inflation is going to be clearly transitory," he said. "It looks pretty clear when this passes, inflation is going to trend back to 2 per cent in the next year or two."

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