Recent market turmoil only warrants a change in interest rates by the U.S. central bank if it hits the outlook for inflation or growth, Federal Reserve Bank of Richmond President Jeffrey Lacker said on Tuesday, noting that price pressures remain a worry.
"Financial market volatility, in and of itself, does not require a change in the target federal funds rate, in my view," Lacker said in a prepared speech to the Risk Management Association of Charlotte.
Interest rate policy needs to be guided by the outlook for real spending and inflation," he said in a speech to a business group.
"I believe there are still reasons to remain concerned about the risks to the inflation outlook," Lacker said.
"Financial turbulence has the potential to change the assessment of the appropriate rate if it induces a sufficient revision in growth or inflation prospects," added Lacker, not a voting member of the Fed's policy-setting committee this year.
He said there was certainly the risk that market woes could hurt consumer spending by forcing up the cost of credit, and acknowledged that the fallout for the housing market would probably reduce U.S. growth for the rest of this year.
But Lacker said he did not see a major blow to consumption.
"I still expect consumer spending to be reasonably healthy, and for business investment to continue to expand. But I expect overall growth to come in somewhat below its long-term trend for the remainder of the year, based on my expectations that the drag from housing will continue for some time," he said.
Lacker is a noted anti-inflation hawk on the Fed's policy-setting committee who dissented four times as a voter last year, favoring higher interest rates.