Richmond Federal Reserve Bank President Jeffrey Lacker said on Tuesday he would back an interest rate cut if the evidence pointed to slowing U.S. economic growth and diminished inflation, but he warned that this outcome was by no means automatic.
"If evidence arrives that we need a policy move, of course I will consider it and I will take that evidence seriously ... That evidence would be of the nature of information that alters the outlook for real spending and inflation," he told Reuters in an interview.
"I would not like people to believe that our sense of concern about inflation is diminished because of this episode," said Lacker, deemed one of the most hawkish members of the Fed's policy-setting committee.
Lacker cemented a reputation as an inflation hawk last year when he dissented four consecutive times from the majority decision to keep interest rates steady out of concern inflation had yet to be brought under control. He is not a voter on the panel this year.
Concern that problems in U.S. subprime mortgage market will have a lasting impact on the availability of other credit have roiled global financial markets, and the Fed has said that it will do what is needed to keep the payments system working.
This has contributed to a strong belief that the U.S. central bank will cut the overnight federal funds rate target by at least a quarter-percentage point to 5 percent at its next scheduled policy meeting on Sept. 18.
"The extent to which this (turmoil) has implications for real interest rates will depend on the extent to which it has implications for the path of real spending. If it lowers growth and real spending, that is going to warrant a lower path for real interest rates," Lacker said.
"I think it is very unclear whether the effect on the path of real spending is going to be significant or not," he added.