Fed's Lacker Sees Ongoing "Measured" Pace

Monday, July 11, 2005

Richmond Federal Reserve President Jeffrey Lacker said on Monday it was too soon to say when the U.S. central bank would halt a year-long campaign of interest-rate rises and indicated more increases were likely, Reuters reports. "I think it is still too early to be foreseeing a pause," Lacker said. "It's going to be data-driven, it's going to depend on how things unfold, but we seem to be on a fairly solid growth path and inflation expectations seem well-contained, and in that kind of situation, following through is probably the order of the day," he added.
The non-voting FOMC-member said he was comfortable with the policy committee's wording that it expected to lift interest rates at a "measured pace."
"I'm not willing to set a timeframe on it but yes, I am comfortable with the measured pace characterization right now."
Lacker said oil price rises had not passed through to core consumer inflation to any large extent over the past several years. Nor is a continued surge in housing prices likely to ruffle the inflation waters.
"I think that the more likely risk, although it is a small one at this point, is an acceleration of unit labor costs," Lacker said. "The recent data are somewhat clouded, probably by the exercise of stock options ... so it is hard to get a real bead on that."
Lacker said unit labor costs could become a threat if growth in productivity, or hourly output from U.S. workers, tailed off.
"In recent months we've had some core PCE numbers that are higher than I would like to see sustained. But I like where we are on a year-over-year basis and I think the general anticipation (is) for those monthly numbers to settle back down in the second half of the year," he said.
Low Long Rates No Conundrum For Lacker
Lacker said he did not think the low level of long-term interest rates - which Greenspan has dubbed a "conundrum" - indicated the bond market has correctly identified a looming economic slowdown the Fed has missed.
"In my view, the level of long rates is understandable," the Richmond Fed chief said. "Business investment spending is coming in a little bit below expected, in dollar terms. Just where it comes in in real terms over the second half is an interesting question."


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