• Says strong U.S. dollar, oil price drop will be temporary
  • Inflation expectations are anchored, official says in Paris

Federal Reserve Bank of Richmond President Jeffrey Lacker said that inflation will rise back to the U.S. central bank’s 2 percent target once energy prices stabilize and the dollar stops advancing.

“I am reasonably confident that, barring subsequent shocks, inflation will move back to the FOMC’s 2 percent objective over the medium term,” Lacker said in remarks prepared for a speech at the Banque de France in Paris Monday, referring to the policy-setting Federal Open Market Committee.

Jeffrey Lacker speaks on March 21.
Jeffrey Lacker speaks on March 21.
Photographer: Christophe Morin/Bloomberg

Lacker, who doesn’t vote on monetary policy this year, dissented in September and October in favor of an earlier liftoff of interest rates from zero -- a move finally made by the Fed in December. Consistently among the most hawkish of Fed officials in favoring action to head off inflation or asset price bubbles, Lacker didn’t comment in his text on the Fed’s decision last week to hold its target for the benchmark policy rate unchanged at 0.25 percent to 0.5 percent.

“Inflation has been held down recently by two factors, the falling price of oil and the rising value of the dollar,” Lacker said. “But neither factor is likely to depress inflation indefinitely. After the price of oil bottoms out, I would expect to see headline inflation move significantly higher.”

Steadier Oil

Oil prices have already shown signs of stabilizing. West Texas Intermediate crude has had a fifth weekly gain, the longest bull run since May, amid assessments that stronger demand and falling U.S. shale oil production will ease a global glut.

Lacker described inflation expectations, which he said play a critical role in determining U.S. prices, as “well anchored.”

The Richmond Fed leader said he wasn’t bothered by forecasts of inflation for the next five or 10 years of slightly below 2 percent, which “is not inconsistent with the expectation that inflation will move back to the Fed’s target.”

Fed officials last week also scaled back projections for the number of interest-rate increases this year. The median of policy makers’ updated quarterly projections saw the benchmark rate at 0.875 percent at year-end, implying two quarter-point increases this year, down from four rate 2016 hikes forecast in December.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE