Rates Should Rise in 2013; No More Easing: Fed’s Lacker

Economic conditions are likely to pick up enough so that the U.S. Federal Reserve will need to begin raising interest rates in 2013, Richmond Federal Reserve Chairman Jeffrey Lacker told CNBC.

Jeffrey Lacker
Source: Richmondfed.org
Jeffrey Lacker

Growth this year likely will average between 2 percent and 2.5 percent, and then return to about 3 percent next year, providing enough impetus, he said, for the central bank to come off its long-running zero-interest-rate policy and return to normalization.

Lacker's stance on the interest-rate issue differs with Fed Chairman Ben Bernanke and the balance of the Open Market Committee, which has pegged 2014 as the earliest it would start boosting rates.

"My estimate is that economic conditions are likely to warrant low rates until sometime in the middle of next year," Lacker said. "If I had to pick a central tendency in the forecast, that's when I'd pick for when rates are likely to rise. That's not a promise, and neither is the committee's statement. It's a forecast of what we're likely to find appropriate in the future."

Consequently, the Fed will not need to enact a third version of its quantitative easing program, which has been used to boost liquidity and push investors toward riskier assets such as stocks and commodities, Lacker said.

He acknowledged that easing has to remain "part of the toolkit" the Fed has available should economic conditions worsen, but added that the central bank could begin tightening even before the employment picture has turned the corner.

"We need to be (aware) of the possibility that 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," he said.