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Fed's Lacker says there still a case for further rate hikes

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond.
Justin Solomon | CNBC
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond.

Richmond Federal Reserve President Jeffrey Lacker said on Wednesday there is still a case for raising interest rates further, a sign the central bank's internal debate over rate hikes remains a live one.

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

"This perspective would bolster the case for raising the federal funds rate target," Lacker, who is not a voting member on the Fed's rate-setting committee this year but participates in its discussions, said in prepared remarks for a university gathering in Baltimore.

Lacker's speech followed comments by Kansas City Fed President Esther George on Tuesday that the Fed should consider raising rates at its March 15-16 meeting.

George and Lacker are among the Fed policymakers who most urge an active fight against future high inflation, or "hawks" in central banking parlance.

In his speech, Lacker argued against the view that inflation is expected to fall well short of the Fed's 2 percent target in coming years.

Many economists and investors think low inflation expectations and heightened financial market volatility will lead the Fed to leave interest rates unchanged in March and possibly for the rest of this year, despite the signal policymakers gave in December that they could hike four times in 2016.

But Lacker said that economic analysis suggests inflation could average 1.9 percent in the period between 5 years and 10 years from the present.