Fed’s Lacker favours June rate liftoff despite recent weak data

RICHMOND, VIRGINIA – Federal Reserve Bank of Richmond President Jeffrey Lacker said yesterday (April 10) that he continues to favour a first interest rate hike in June because recent soft data on the United States economy will probably prove temporary.

“Readings on some indicators have been unexpectedly weak in recent weeks, some of which may be attributable to unseasonably adverse weather,” said Mr Lacker, who votes on monetary policy this year.

“It’s too soon say how much, however, and the more prudent approach is to look through very short-term fluctuations,” he added

The Federal Open Market Committee (FOMC) was split at its meeting last month on when to begin raising the benchmark rate from near zero. Several participants wanted to normalise policy starting in June, while others favoured later in the year, according to minutes of the March 17-18 gathering released on Wednesday.

“I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting,” Mr Lacker said in Florida at an event hosted by the Global Interdependence Center and the Financial Planning Association of the Suncoast.

In March, the FOMC dropped a pledge to be “patient” as it considered the first rate rise since 2006, while also reducing forecasts for the path of increases. Fed Chair Janet Yellen has since said borrowing costs would probably be raised gradually, and a weak payrolls report released last week has added to caution among officials.

Payrolls climbed by 126,000 in March, breaking a year-long string of monthly gains exceeding 200,000, according to a Labor Department report on April 3.

Mr Lacker said he was confident inflation would return to the Fed’s target over time. Prices as measured by the Fed’s preferred gauge rose just 0.3 per cent in February from a year earlier, and inflation has languished below the central bank’s 2 per cent goal for 34 straight months. BLOOMBERG