CNBC TRANSCRIPT: FEDERAL RESERVE BANK OF RICHMOND PRESIDENT JEFFREY LACKER SPEAKS WITH CNBC’S STEVE LIESMAN ON “SQUAWK BOX” TODAY

When: Today, Friday, March 30th at 8AM ET

Where: CNBC’s “Squawk Box”

Following is the unofficial transcript of a CNBC interview with Federal Reserve Bank of Richmond President Jeffrey Lacker today, Friday, March 30th on CNBC’s “Squawk Box” (M-F, 6-9AM ET). All references must be sourced to CNBC.

Video: Richmond Fed President: Growth to Pick Up Gradually

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STEVE LIESMAN: THANKS VERY MUCH. I'M HERE WITH RICHMOND FED PRESIDENT JEFFREY LACKER AT THE RICHMOND FED’s CREDIT MARKET SYMPOSIUM WHICH IS ONE OF THE MOST IN THE DETAILED AND IN A SENSE IN THE WEEDS CREDIT MARKET SYMPOSIUMS OUT THERE. BUT IT HAS DONE A PRETTY GOOD JOB FORECASTING TRENDS, JEFF LACKER.

JEFFREY LACKER: I THINK WE'VE MANAGED TO PICK SOME GOOD TOPICS, AND GET INTO DETAILS ON THEM AND BRING IN SOME REALLY SMART PEOPLE.

LIESMAN: I LOVE THE CONVERSATION YESTERDAY ABOUT HOW THE QRM COULD AFFECT THE VAR, RIGHT? LET'S TALK ABOUT THE BROADER STORY OUT THERE. THERE'S CONCERN THE 3% GROWTH IN THE FIRST QUARTER IS NOT GOING TO CONTINUE AND, IN FACT, THERE'S CONCERN THAT AS THE YEAR GOES BY, IN FACT GROWTH COULD WEAKEN. WHAT'S YOUR OUTLOOK?

LACKER: IT HASN'T CHANGED MUCH IN THE LAST COUPLE MONTHS, I'M STILL LOOKING FOR SOMETHING BETWEEN 2% AND 3% MAYBE SOMEWHERE IN THE MIDDLE OF THAT BAND FOR THIS YEAR AND RISING NEXT YEAR.

LIESMAN: TO WHAT?

LACKER: IT COULD GET TO 3%, A LOT OF UNCERTAINTY AROUND THAT. I THINK GROWTH IS GRADUALLY GOING TO PICK UP. IT'S CONSISTENT WITH THE TRENDS WE’VE SEEN IN THE DATA. I THINK CONSUMERS ARE GOING TO MOVE AHEAD MORE RAPIDLY SOME QUARTERS, LESS RAPIDLY SOME OTHER QUARTERS. THE JOB MARKET SEEMS TO BE GRADUALLY HEALING. BUSINESS INVESTMENT STILL SEEMS TO HAVE A LOT OF MOMENTUM TO IT. THERE SEEM TO BE A LOT OF OPPORTUNITIES OUT THERE FOR FIRMS TO DEPLOY NEW CAPITAL, TO REDUCE COSTS AND RATIONALIZE BUSINESS PROCESSES. SO FUNDAMENTALLY I'M REASONABLY HOPEFUL WE'RE GOING TO GET GOOD GROWTH THIS YEAR.

LIESMAN: AN INTERESTING DEBATE THAT THE CHAIRMAN JUST ADDRESSED IN A SPEECH BETWEEN WHAT THE JOBS NUMBERS ARE SHOWING US WHAT UNDERLYING GROWTH SHOULD BE AND WHAT SAY THE INCOME AND SPENDING NUMBERS ARE SHOWING US AND WHAT GROWTH SHOULD BE. AND THE DIFFERENCE IS LIKE BETWEEN 4% AND 2%. WHERE DO YOU SIDE?

LACKER: THAT'S INTERESTING. IN THE OLD DAYS PRODUCTIVITY WOULD FALL A LOT IN A RECESSION. BUT THIS MILLENNIUM IN 2001 AND THEN THE LAST RECESSION, PRODUCTIVITY INCREASED A LOT. FIRMS WERE ABLE TO LAY OFF WORKERS, CUT DOWN, TRIM AND REALLY GET LEAN AND MEAN. AND GET AWFULLY EFFICIENT. SO NATURALLY SOME OF THE PRESSURE THEY'RE UNDER IN A RECESSION WHEN THINGS ARE FALLING AND THEY'RE NOT SURE WHERE THE ECONOMY IS GOING, A LOT THAT PRESSURE EASES UP AFTER A COUPLE OF YEARS. AND THEN THE PRODUCTIVITY NUMBERS GET SOFTER. WE’VE SEEN THAT PATTERN BIG TIME IN THIS RECESSION AND I EXPECT SOME OF THE GAP IS DUE TO THAT PHENOMENON.

LIESMAN: SO YOU EXPECT PRODUCTIVITY TO FALL CYCLICALLY. WHICH IS SAYING TO ME THAT YOU ARE NOT REALLY WORRIED ABOUT IT AS PART OF A TREND.

LACKER: WELL I THINK WE’VE SEEN SOFTER PRODUCTIVITY GROWTH NUMBERS. I THINK THAT’S A TEMPORARY PHENOMENON, PRODUCTIVITY WILL PICK UP WILL TO CLOSER TO IT’S LON-- TREND

LIESMAN: LET'S GO TO YOUR OTHER FAVORITE TOPIC, WHICH IS INFLATION. IN FACT IT MAY BE YOUR FIRST FAVORITE TOPIC. SEEMED TO ME WHEN I READ THE FED'S RECENT POLICY STATEMENT THAT IT KIND OF PUSHED AHEAD THE TIME PERIOD FOR THE EXPECTATION IS FOR INFLATION TO FALL. HOW MUCH CONCERN RIGHT NOW IS THERE OVER HIGHER OIL PRICES AND INFLATION?

LACKER: SO I THINK WE'RE IN REASONABLY GOOD SHAPE RIGHT NOW. I'M EXPECTING INFLATION TO BE AROUND 2% IN THE NEXT YEAR OR TWO. THAT'S OUR NEW NOW OFFICIAL AS OF JANUARY, INFLATION GOAL OBJECTIVE. I THINK ENERGY PRICES ARE GOING TO PUSH THAT A LITTLE BIT AWAY FROM THAT FOR THE NEXT MONTH OR TWO. CORE INFLATION NUMBERS ARE RUNNING CLOSE TO 2, THOUGH. I THINK THE BROAD FIRMING TREND WE'VE SEEN OVER THE LAST COUPLE OF YEARS IS COMING TO A STOP RIGHT NOW, I HOPE. IF INFLATION PRESSURES KEPT GOING UP, I'D BE REALLY CONCERNED. BUT I DON'T EXPECT THEM TO. I THINK WE'RE GOING TO HANG AROUND 2 RIGHT NOW.

LIESMAN: YOU’VE DISSENTED TWICE AND THEN THE THIRD TIME AS A SUBSTITUTE VOTER AND DISSENTER BACK IN NOVEMBER. WHAT IS YOUR ISSUE WITH THE FED PROMISING TO -- OR NOT PROMISING -- I GUESS THAT'S PROBABLY YOUR ISSUE. THAT IT’S FORECAST IT WILL REMAIN EXCEPTIONALLY LOW UNTIL LATE 2014?

LACKER: WELL I JUST DISAGREE. MY ESTIMATE IS THAT ECONOMIC CONDITIONS ARE LIKELY TO WARRANT LOW RATES UNTIL SOMETIME THE MIDDLE OF NEXT YEAR. AND THAT’S WHEN I THINK IT IS MOST LIKELY-- IF I HAD TO PICK A CENTRAL TENDENCY OF A FORECAST, THAT'S WHEN I WOULD PICK—TO CHOOSE WHEN RATES ARE LIKELY TO RISE. THAT'S NOT A PROMISE AND NEITHER IS THE COMMITTEE STATEMENT EITHER. IT'S A FORECAST OF WHAT WE'RE LIKELY TO FIND APPROPRIATE IN THE FUTURE. AND THAT'S JUST THE WAY I SEE IT SO I VOTED ACCORDINGLY.

LIESMAN: BUT IS YOUR ISSUE WITH THE DATE OR IS IT WITH THE ACT OF PUTTING IT IN THE STATEMENT?

LACKER: WELL I ACTUALLY THOUGHT THE JANUARY MEETING WOULD HAVE BEEN A GREAT TIME TO STEP AWAY FROM KEEPING THAT DATE THAT CALENDAR DATE IN THE LANGUAGE. THE REASON IS THAT AS OF JANUARY IN OUR ECONOMIC PROJECTIONS THAT WE DO FOUR TIMES A YEAR AND RELEASE TO THE PUBLIC, WE BEGAN INCLUDING OUR PROJECTIONS FOR INTEREST RATES FOR THE FEDERAL FUNDS RATE. AND YOU GET A VERY RICH VIEW OF THE VARIOUS VIEWS ON THE COMMITTEE ABOUT INTEREST RATE PATH GOING FORWARD, WHAT THEY THINK IS MOST LIKELY UNDER APPROPRIATE MONETARY POLICY AND I THOUGHT THAT WAS THE WAY WE OUGHT TO BE COMMUNICATING ABOUT HOW LONG WE THOUGHT POLICY WOULD KEEP INTEREST RATES LOW.

LIESMAN: HOW BIG OF AN ISSUE IS IT IF THE COMMITTEE HAS TO STEP BACK AND SAY IT'S NOT LATE 2014, IT'S LATE 2013?

LACKER: THIS IS THE TRICKY PART BECAUSE IF IT'S NOT A COMMITMENT, IF IT'S A FORECAST, IT OUGHT TO VARY AS THE OUTLOOK VARIES, KIND OF SENSITIVELY. WHICH MEANS IT COULD MOVE KIND OF LIKE A TROMBONE. IT COULD MOVE OUT WHEN THINGS WEAKEN AND THE OUTLOOK WEAKENS. IT COULD MOVE IN WHEN THINGS STRENGTHEN AND IT LOOKS LIKE IT MIGHT BE SOONER THAT WE RAISE RATES.

LIESMAN: IT WOULD BE A TIGHTENING, WOULDN'T IT ESSENTIALLY?

LACKER: IF YOU THINK OF IT THAT WAY. I DON'T THINK OF IT AS A TIGHTENING. BECAUSE POLICY NOW IS POLICY NOW. THAT’S THE WAY TO THINK ABOUT POLICY.

LIESMAN: YOU GAVE A REALLY INTERESTING SPEECH LAST NIGHT IN WHICH YOU PUT FORWARD YOUR OWN FINANCIAL STABILITY PLAN. AMONG OTHER THINGS I WANT TO GET TO THE PLAN IN JUST A SECOND, YOU WERE PRETTY CRITICAL OF DODD-FRANK.

LACKER: WELL, IT DOES SOME REALLY GOOD THINGS, I’VE GOT TO BE CLEAR ABOUT THAT, THAT WE WELCOME. THE ENHANCED PRUDENTIAL SUPERVISION PROVISIONS ARE GREAT AND WHAT I TALKED ABOUT LAST NIGHT WAS THIS REQUIREMENT THAT A LOT OF FINANCIAL INSTITUTIONS FILE WITH SUPERVISORS SO-CALLED LIVING WILLS, THESE PLANS FOR HOW THEY WOULD BE UNWOUND IN AN ORDERLY WAY --

LIESMAN: THAT’S THE GOOD STUFF YOU SAID ABOUT IT BUT YOU SAID SOME OTHER STUFF.

LACKER: YEAH, WELL THERE ARE SOME OTHER THINGS THAT ARE SORT OF EXTRANEOUS AND YOU COULD ARGUE WITH WHETHER THEY WERE REALLY PRODUCTIVE OR NOT.

LIESMAN: LET'S TALK ABOUT YOUR PLAN. ELIMINATE 13-3. IN OTHER WORDS, NO EMERGENCY LENDING POWERS FOR THE FED, CHANGE THE BANKRUPTCY CODE TO HANDLE TOO BIG TO FAIL THROUGH THE BANKRUPTCY CODE AND THIS ONE FLOORED ME, ALLOW MONEY MARKETS TO HALT REDEMPTIONS LIKE HEDGE FUNDS CAN.

LACKER: MONEY MARKET FUNDS HAVE THIS BUILT IN TURBO CHARGER THAT MAKES THEM VULNERABLE TO RUNS. IF YOU GO AND GET YOUR MONEY OUT TODAY, YOU CAN STICK OTHER MONEY MARKET MUTUAL FUND SHAREHOLDERS WITH LOSSES THAT THAT FUND HAS REALIZED IF THEY WAIT TILL TOMORROW. THAT JUST GIVES EVERYBODY AN INCENTIVE TO HEAD FOR THE EXITS TO TRY AND STICK SOMEONE ELSE WITH THE LOSS. MONEY MARKET FUNDS AREN'T ALLOWED TO PROTECT THEMSELVES AGAINST THAT WITHOUT TOTALLY LIQUIDATING THEIR FUND. THAT'S JUST AN ARTIFICIAL REGULATORY INDUCED FRAGILITY.

LIESMAN: BECKY QUICK HAS A QUESTION. BECKY?

BECKY QUICK: THANK YOU VERY MUCH, STEVE. PRESIDENT LACKER, IF YOU WERE JUST TALKING ABOUT WHAT YOU'VE SEEN WITH OIL PRICES, YOU MENTION THAT YOU THINK IT COULD PUSH INFLATION HIGHER FOR THE NEXT MONTH OR TWO. WHAT DO YOU SEE HAPPENING THAT BRINGS OIL PRICES BACK DOWN AFTER THAT TIME FRAME?

LACKER: WELL, BECKY, AS YOU WELL KNOW, ECONOMISTS FACE THIS DILEMMA WITH ENERGY MARKETS. IT'S HARD TO ARGUE WITH THE FUTURES MARKETS. THE PRICE IS BUILT IN THERE REPRESENT AMALGAMATION WIDESPREAD VIEWS AND FINANCIAL MARKETS ABOUT WHERE OIL PRICES ARE HEADED. WHEN THEY'RE FLAT OR DECLINING, IT'S HARD TO ARGUE THERE'S GOING TO BE AN UPWARD TREND IN OIL PRICES. HAVING SAID THAT WE'VE BEEN SURPRISED ON THE UP SIDE MORE OFTEN THAN THE DOWN SIDE OVER THE EIGHT YEARS OR SO. IT'S HARD TO BE SANGUINE OR OVERCONFIDENT ABOUT PREDICTING OIL PRICES.

QUICK: DO YOU THINK THE HIGHER PRICES ARE HERE BECAUSE OF INSTABILITY AROUND THE GLOBE BECAUSE OF POLITICAL ISSUES OR IS THIS REALLY SOME SORT OF A SUPPLY ISSUE? THAT WOULD PROBABLY DETERMINE HOW LONG YOU THINK IT'S GOING TO LAST.

LACKER: I THINK IT'S A COMBINATION OF ALL THREE. I THINK THE LONGER-RUN GLOBAL TREND IN GROWTH IS PUTTING PRESSURE ON ALL SORTS OF ENERGY SUPPLIES AROUND THE GLOBE AND THE WAY THOSE MARKETS ARE KNIT TOGETHER, THAT PRESSURE IS GOING TO BE TRANSMITTED TO A LOT OF LOCAL MARKETS AS WELL. I THINK THE GEOPOLITICAL UNCERTAINTIES ARE CERTAINLY A FACTOR NOW. YOU'D EXPECT THAT TO BE TEMPORARY, NOT TO LAST MORE THAN A COUPLE OF QUARTERS. SO I THINK IT'S A MIXTURE OF THE TWO. AND THAT MAKES IT REALLY HARD TO PICK WHERE OIL PRICES ARE GOING TO BE A YEAR FROM NOW.

JOE KERNEN: PRESIDENT LACKER, I GUESS YOU MUST HAVE A DISAGREEMENT WITH THE FED CHAIRMAN BECAUSE IN YOUR WORLD IF YOU THINK THINGS ARE GOING TO BE PRETTY GOOD A YEAR FROM NOW, THERE WOULDN'T EVEN BE A THOUGHT OF QE3,THE IDEA OF IT WOULDN'T BE ON THE TABLE I WOULD IMAGINE. AM I WRONG ON THAT? AND THEN WHY IS IT?

LACKER: WELL, YOU KNOW, FURTHER EASING MOVES ARE SOMETHING THAT'S PART OF THE ARSENAL, PART OF THE TOOL KIT AND THERE ARE CONDITIONS ONE COULD CONCEIVE OF UNDER WHICH YOU'D PULL THEY AND ENACT THEM. BUT I THINK WE ARE REALLY FAR FROM THAT RIGHT NOW.

KERNEN: BUT IF YOU'RE RIGHT, WHAT YOU SAID ABOUT THE NEXT YEAR, THEN AM I WRONG TO SAY THAT THERE WOULD BE NO CONSIDERATION AT ALL, NO NEED TO CONSIDER QE3?

LACKER: I THINK THAT'S RIGHT, JOE. I THINK IF WE GET GROWTH ABOUT WHAT I'M EXPECTING, ABOUT WHAT A LOT OF PEOPLE ARE EXPECTING, YOU LOOK AT THE BLUE CHIP CONSENSUS, OTHER FORECASTERS. IF YOU CAN GET GROWTH ALONG THOSE LINES, I DON'T SEE WHERE THE RATIONALE FOR FURTHER EASING IS GOING TO COME FROM.

KERNEN: I MEAN, THAT'S SAYING SOMETHING I THINK. THEN WE DON’T UNDERSTAND-- EVERYBODY WHO IS SCRATCHING THEIR HEAD IS NOT CRAZY WHEN THEY HEARD THAT THE OTHER DAY THEN.

LACKER: WELL, HEARD WHAT?

QUICK: WHEN BERNANKE –

KERNEN: WHEN THE STREET DECIDED THAT QE3 WAS A POSSIBILITY AND SOME OF THESE TRADERS THAT ARE LIKE DRUG ADDICTS, I MEAN, ANYTHING FROM THE FED -- I MEAN, WHY THEY DON'T WANT JUST GOOD ECONOMIC GROWTH OR CORPORATE PROFITS. THEY ALWAYS WANT SOME STEROID FOR THE STOCK MARKET. THEY'RE SO HAPPY TO HEAR QE3 BUT MOST PEOPLE ARE SAYING YOU GOT TO BE KIDDING AT THIS POINT.

LACKER: I CAN'T COMMENT ON DRUG USE ON WALL STREET REALLY.

LIESMAN: YOU KNOW THAT'S THE CLIP WE'RE GOING TO GO WITH. IT DOES RAISE THE QUESTION ABOUT HIGHER INTEREST RATES, WHICH HAS COME ALONG 180 OR SO ON THE TEN-YEAR AND THEN NEARLY 240. HOW MUCH OF A THREAT WHEN YOU LOOK AT WHAT'S HAPPENING WITH INTEREST RATES DOES THAT REPRESENT TO THE RECOVERY?

LACKER: THE THREAT FROM HIGHER INTEREST RATES?

LIESMAN: YES.

LACKER: I THINK IF HIGHER INTEREST RATES COME ABOUT, IT WILL BE BECAUSE OF THE STRONGER RECOVERY. IT WON'T BE AN OBSTACLE TO IT, IT WILL BE BECAUSE OF THE STRONGER RECOVERY.

LIESMAN: WHEN WE LOOK AT THE THREATS THROUGH THE RISK TO YOUR FORECAST, WHERE DOES EUROPE PLAY IN?

LACKER: IT'S A MINOR RISK. A RISK THAT'S RECEDED AT THIS POINT. IT WAS A MUCH STRONGER RISK THIRD AND FOURTH QUARTER LAST YEAR FOR SURE. IT WASN’T CLEAR EVERYTHING WAS GOING TO GEL AND COME TOGETHER IN AN UNBUMPY WAY SHALL WE PUT IT. BUT I THINK THE COURSE IS SET NOW. THEY’VE GOT MECHANISMS IN PLACE, THEY'VE GOT BROAD CONSENSUS ON HOW TO APPROACH THIS. THERE ARE A LOT OF DISAGREEMENTS, A LOT OF THINGS TO WORK OUT IN THE MARGINS, A LOT OF FINE PRINT TO SORT OUT. THEY'VE GOT A COURSE FORWARD AND MANAGED TO CONVINCE PEOPLE THEY'VE GOT A PLAN AND A WAY TO DEAL WITH IT.

LIESMAN: JEFF, I WAS HOPING TO COME HERE TO THE CREDIT MARKET SYMPOSIUM AND HEAR THAT THE CREDIT MARKETS HAVE REVIVED. I'M NOT HEARING THAT. WHAT CAN YOU TELL US ABOUT WHAT IS HAPPENING PARTICULARLY WITH SECURITIZATION AND BANK LENDING RIGHT NOW.

LACKER: I THINK IT'S A MATTER OF SUPPLY AND DEMAND. I DON'T THINK THE DEMAND FOR BANK LENDING IS THERE. TO PUT IT ANOTHER WAY, IF YOU TALK TO BANKERS AND ASK THEM WHAT'S RESTRAINING LENDING THEY’LL SAY THE SUPPLY OF CREDIT WORTHY BORROWERS. THERE SURE ARE CASES OF PEOPLE THAT CAN’T GET CREDIT THAT THINK THEY DESERVE IT BUT FOR THE MOST PART BANKS ARE FALLING ALL OVER THEMSELVES LOOKING FOR CREDIT WORTHY LENDERS TO MAKE SOME YIELD OFF OF.

LIESMAN: YOU OVERSEE AN ARMY OF SUPERVISORS. THERE'S BEEN A CRITICISM THAT SUPERVISORS ARE SORT OF PUSHING AND PULLING, LEND, LEND, LEND, NO, DON'T LED. AND WHAT ABOUT THE GUIDANCE FROM REGULATORS? IS THAT INHIBITING LENDING?

LACKER: I DON’T THINK SO BROADLY SPEAKING I DON’T THINK SO. THERE MAY BE A CASE HERE OR THERE WHERE SOMETHING'S GOT MISINTERPRETED IN THE TELLING BUT I THINK FOR THE MOST PART OUR EXAMINERS ARE WELL TRAINED ON WHERE THEY CAN USE DISCRETION, WHERE THE JUDGMENT IS SUPPOSED TO FALL AND HOW TO APPLY THE STANDARDS WE HAVE.

LIESMAN: I THINK BECKY HAD ANOTHER QUESTION. BECKY?

QUICK: YEAH, STEVE THANKS. PRESIDENT LACKER, JUST GOING BACK TO THIS IDEA OF WHAT YOU SEE, HOW OPTIMISTIC YOU ARE ABOUT THE ECONOMY, WHEN CHAIRMAN BERNANKE SPOKE ON MONDAY, A LOT OF US WERE SITTING AROUND THE TABLE THINKING HE'S GOT REAL CONCERNS ABOUT THE LABOR MARKET AND WHETHER THE POSITIVE NEWS WE'VE BEEN SEEING RECENTLY IS TEMPORARY. DO YOU SHARE HIS CONCERNS OR DO YOU THINK THE NUMBERS WE’VE BEEN SEEING ABOUT THE LABOR MARKETS ARE A LITTLE MORE SPOT ON AND THAT THIS MIGHT BE HERE TO STAY?

LACKER: I LIKE THE NUMBERS I'VE SEEN IN THE LABOR MARKET BUT WE'VE HAD RUNS OF ABOVE 200 BEFORE ONLY TO SEE IT FALL BACK TO RUNS OF HUNDRED THOUSAND JOB PER MONTH NUMBERS. YEAH, YOU HAVE TO BE CAUTIOUS, YOU HAVE TO KEEP IN MIND THE POSSIBILITY THAT THINGS SLOW DOWN A BIT. BUT I'VE BEEN HEARTENED BY THE RECENT NUMBERS. MY READING OF WHAT I HEAR FROM THE FIELD, WHAT I HEAR FROM OUR CONTACTS AROUND THE FIFTH FEDERAL RESERVE DISTRICT THAT GOES FROM MARYLAND TO THE CAROLINAS OUT TO WEST VIRGINIA IS CONSISTENT WITH THE PICK UP IN OPTIMISM A PICK UP IN SORT OF POSITIVE SENTIMENT IN THE BUSINESS COMMUNITY. IT DEFINITELY HAS A DIFFERENT TONE, A DIFFERENT FEEL THAN IT DID A YEAR AGO WHEN WE GET THE STRING OF POSITIVE NUMBERS. I WOULDN'T SAY THAT I DIFFER ON THE CHAIRMAN ON THIS BUT I THINK THERE'S ROOM FOR OPTIMISM. I SHARE HIS CONCERN ABOUT THE TREMENDOUS HARDSHIP BEING SUFFERED BY THE FAMILIES OF LONG-TERM UNEMPLOYED AND, YOU KNOW, THE TREMENDOUS GAP BETWEEN, YOU KNOW, THE NUMBER OF PEOPLE THAT ARE LOOKING FOR WORK AND THE NUMBER OF JOBS WE CAN PROVIDE AS AN ECONOMY.

QUICK: BUT IF YOU LOOK TO NEXT YEAR WHEN YOU THINK THE ECONOMIC CONDITIONS ARE GOING TO WARRANT POTENTIALLY RAISING INTEREST RATES AT THAT POINT, DOES YOUR FORECAST INCLUDE AN UNEMPLOYMENT RATE THAT IS WELL BELOW 8%?

LACKER: I THINK WE HAVE A GOOD CHANCE OF GETTING BELOW 8% BY 2013.

QUICK: A GOOD CHANCE BUT THE UNEMPLOYMENT PICTURE DOESN'T NECESSARILY WEIGH TOO HEAVILY ON YOUR FORECAST ONE WAY OR THE OTHER?

LACKER: WELL, I THINK WE NEED TO BE PREPARED FOR THE POSSIBILITY WE NEED TO START RAISING RATES, WITHDRAWING MONETARY STIMULUS, WHICH IS A TREMENDOUS MAGNITUDE RIGHT NOW BEFORE UNEMPLOYMENT HAS GOTTEN DOWN TO A PLACE WHERE WE CAN CALL IT FULL EMPLOYMENT OR CALL IT SUSTAINABLE, LONG-RUN EMPLOYMENT OR WHATEVER YOU WANT TO CALL IT. I THINK INFLATION PRESSURES CAN ARISE EVEN IF UNEMPLOYMENT IS ABOVE 6% OR 7%.

LIESMAN: THAT'S CRITICAL. THAT'S A PLACE WHERE YOU DO DIFFER WITH THE CHAIRMAN, RIGHT? THE CHAIRMAN SEES HIGH UNEMPLOYMENT AS SOMETHING THAT WILL LEAD TO LOW INFLATION OUTCOMES. YOU DON'T BELIEVE THAT?

LACKER: WELL, I THINK WE'VE OVERESTIMATED -- IN THE PAST I'VE SEEN PEOPLE OVERESTIMATE THE EXTENT TO WHICH SLACK IS GOING TO DEPRESS INFLATION. WE'VE DONE THAT TIME AND AGAIN AND WE'VE HAD PLENTY OF EXPERIENCES OF INFLATION PRESSURES ARISING DESPITE REASONABLY ELEVATED UNEMPLOYMENT RATES. I DON’T TAKE A LOT OF COMFORT THAT SLACK IS--

LIESMAN: THIS IS A FUNDAMENTAL DIFFERENCE. THIS IS THE OUTPUT GAP THEORY THAT BIG OUTPUT GAPS LEAD TO LOW INFLATION. WHAT DOES CAUSE INFLATION IN YOUR MIND? WHAT WOULD YOU BE LOOKING AT TO SAY THIS IS THE THING THAT BOTHERS ME TO CAUSE INFLATION?

LACKER: IT'S GOING TO SHOW UP IN PEOPLE PUSHING UP MARGINS. IT GOING TO SHOW UP IN CORE INFLATION, ITS GOING TO SHOW UP IN A BROAD RANGE OF PRICE INDEXES. AND IT IS GOING TO SHOW UP IN EXPECTATIONS. THAT’S WHERE YOU KNOW THINGS ARE GETTING OUT OF CONTROL WHEN THE SURVEY EVIDENCE AND TIP YIELDS ALL LINE UP AND TELLS YOU YOU'VE LOST A BIT OF CREDIBILITY AND PEOPLE THINK INFLATIONS HEADING CLOSER TO 3% THAN 2.

LIESMAN: I WANT TO MAKE SURE ANDREW DOESN'T FEEL LIKE HE'S LEFT OUT.

ANDREW ROSS SORKIN: NO THAT’S OK--

KERNEN: NO, I JUST HAVE ONE OTHER AND THEN ANDREW CAN… WE HAVE THIS IDEA PRESIDENT LACKER THAT IT'S BEEN POSITIVE THAT AT THE TIME OF THE FINANCIAL CRISIS A LOT OF MANAGERS IMMEDIATELY LAID OFF A LOT OF PEOPLE BECAUSE THEY PANICKED AND THEN IT WAS AN OVERSHOOT AND THEN IT SNAPPED BACK RECENTLY AS WE'VE COME DOWN QUICKLY TO 8.3% BUT THAT THE BIGGEST -- OR THE EASIEST GAINS IN EMPLOYMENT HAVE ALREADY BEEN HAD. DO YOU ASCRIBE TO THAT THEORY AS WELL OR NOT?

LACKER: WELL, MAYBE NOT ENTIRELY. I MEAN, WE CERTAINLY HAVE HEARD PLENTY OF STORIES FROM AROUND OUR DISTRICT OF VERY RAPID LAYOFFS IN 2009. I WOULDN'T CALL IT PANICKED. THEY WERE GENUINELY CONCERNED AND GENUINELY APPREHENSIVE AND FOR GOOD REASONS, VERY UNCERTAIN ABOUT THEIR ECONOMIC PROSPECTS. THEY WERE HUNKERING DOWN AND TRYING TO GET BY ON AS FEW WORKERS AS THEY COULD. TO ME IT DOESN'T MEAN THAT CURRENT GAINS AREN’T SUSTAINABLE. FUNDAMENTALLY NEW HIRES ARE ABOUT SOME CONFIDENCE THAT THE BUSINESS IS GOING TO BE THERE, THE NEED'S GOING TO THERE. I THINK THERE’S PLENTY OF REASON FOR FIRMS TO CONTINUE TO EXPAND.

KERNEN: I JUST WONDER IF THERE'S A PERMANENT ONE OR TWO PERCENTAGE POINTS THAT WE NEVER GET BACK BECAUSE CONSTRUCTION AND HOUSING NEVER GETS BACK TO THE BUBBLE YEAR. SO THAT INSTEAD OF 5-- IN CLINTON 5%. SECOND BUSH 5%. IS 7 WHERE WE ARE NOW?

LACKER: YOU KNOW, IF YOU LOOK HISTORICALLY, UNEMPLOYMENT GRADUALLY DECLINES AND JUST GRADUALLY KEEPS DECLINING DURING THE EXPANSION. SO I DON'T THINK WE SHOULD THINK OF IT AS A FLOOR WE GET TO AND STAY AT A WHILE. IT CONTINUALLY DECLINES. IT GOT DOWN TO 3.9% UNDER CLINTON.

KERNEN: YEAH. OKAY.

LIESMAN: OKAY. I THINK THAT'S ALL THE TIME WE HAVE UNFORTUNATELY. THANKS FOR JOINING US AND GOOD LUCK TODAY WITH THE REST OF THE SYMPOSIUM.

LACKER: THANKS A LOT.

LIESMAN: FROM CHARLOTTE AND THE RICHMOND FED’S CREDIT SYMPOSIUM BACK TO YOU.

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