Lacker Says It’s Time for Fed to End Era of Zero Rates

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Has the Fed Missed the Boat on Rate Hike?

Federal Reserve Bank of Richmond President Jeffrey Lacker said it’s time for the central bank to end the era of record-low interest rates, now that the impacts from winter weather and energy prices have passed.

The Richmond Fed president, who’s historically been more inclined toward tighter policy than most of his colleagues, said Friday that labor-market slack has been reduced to pre-recession levels, and shorter-term inflation measures are tracking the U.S. central bank’s 2 percent target.

“I am not arguing that the economy is perfect, but nor is it on the ropes, requiring zero interest rates to get it back into the ring,” Lacker said in the text of a speech in Richmond. “It’s time to align our monetary policy with the significant progress we have made.”

Lacker is a voting member of the Federal Open Market Committee this year. He has voted with the majority at every meeting so far, in contrast with his last term as an FOMC voter in 2012, when he dissented in favor of less stimulative policy.

U.S. central bankers face their toughest policy call in years in September and have to decide whether to raise interest rates for the first time since 2006, or wait a little longer. Lacker said he won’t make a final decision on whether to vote for a rate increase until he hears the discussion with his colleagues at this month’s gathering on Sept. 16-17.

“I have laid out my views here. I am always opening to listening to my colleagues in the meeting,” he told reporters after the speech. “I am going in with an open mind.”

Turbulence in global financial markets in recent weeks on signs of slowing growth in China has raised risks to the U.S. outlook and caused Fed officials such as New York Fed President William Dudley to question whether the time is right to raise the benchmark lending rate.

Lacker said that the “direct implications” of the recent market turmoil on U.S. economic fundamentals look limited.

“We could see a fall in exports to China and it only makes a difference of a tenth or two in GDP growth. That is your first-round direct impact,” he told reporters.

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