Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. central bank may need to tighten monetary policy later this year in response to a growing economy and rising inflation.
“It wouldn’t surprise me if we need to act before the end of the year,” Lacker said today in a CNBC television interview. “Inflation is the bigger risk this year. That is what you have to keep your eye on.”
Lacker said today’s employment report showed “strong private sector growth” that is consistent with “pretty strong momentum in the economy right now.”
The U.S. economy added 216,000 workers last month, more than forecast, and the unemployment rate unexpectedly declined to a two-year low of 8.8 percent, figures from the Labor Department showed today.
Lacker said tightening policy could include deciding not to reinvest proceeds from maturing mortgage-backed securities, selling assets and raising the Fed’s target interest rate from near zero. He said both asset sales and interest rate hikes “could be warranted this year.”
“The exact sequence of that is something we are hashing out and trying to think through,” Lacker said in the televised interview, adding “I haven’t made up my mind yet” on whether the Fed should reduce its plan to purchase $600 billion in U.S. Treasuries through June.
“I think it deserves very careful reconsideration,” he said.
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