(Adds comments on hypothetical dissent)
By Jason Lange
CHARLESTON, W.V. Oct 4 Richmond Federal Reserve
President Jeffrey Lacker said he would have voted in favor of an
interest rate hike at the Fed's September policy meeting had he
been able to vote, reflecting the growing pressure on Fed Chair
Janet Yellen to raise rates.
The U.S. central bank left interest rates steady at its Sept
20-21 meeting but three of its 10 voting policymakers dissented
because they wanted a quarter percentage point increase.
Lacker, one of seven policymakers who currently do not have
a vote but who participate in policy discussions, made clear on
Tuesday he would have been in the camp gunning for higher rates.
"I would have dissented," Lacker told reporters in
Charleston, West Virginia where he gave a speech on the economic
Lacker, who is next due to vote on policy at the Fed's
meetings in 2018, said the Fed should raise rates gradually "but
not too gradually" and that the current low level of rates could
push inflation above the Fed's 2 percent target in the next few
Consumer prices other than energy or food, a measure the Fed
watches for gauging inflation trends, rose 1.7 percent in the
year through August, up from 1.4 percent at the end of 2015.
Lacker argued that borrowing costs might need to rise
significantly to keep inflation under control.
The Fed last raised its benchmark federal funds rate in
December and Lacker has been pressing in recent months for
"Pre-emptive increases in the federal funds rate are likely
to play a critical role in maintaining the stability of
inflation," Lacker said in his speech.
The Fed's current target range for the rate is between 0.25
percent and 0.5 percent and most policymakers expect to raise
the range by a quarter point before the end of 2016. Yellen said
last month she also expects one rate increase will be needed
But the Fed is also divided, with several voting members
arguing for a more cautious approach to rate increases, while
others like Lacker see more urgency in lifting borrowing costs.
Prices for fed funds futures suggest investors see just
higher than even odds the Fed will raise rates by the end of the
Lacker argued economic history suggests the fed funds rate
might need to be higher than 1.5 percent at present. He warned
that keeping rates too low could lead to a rise in inflation and
aggressive rate hikes, potentially causing a recession.
"This is the basis for the strong case I have articulated
for raising our interest rate above its current low level," he
(Reporting by Jason Lange; Editing by Chizu Nomiyama)