Bank Watch

Fed’s Lacker makes case against delaying interest rate hike

Jeffrey Lacker, president of the Federal Bank of Richmond, said on Friday that positive economic trends make a case for raising interest rates sooner rather than later. The Fed’s policymaking body is set to meet in about two weeks, but it remains unclear whether it will move to raise rates at that gathering.
Jeffrey Lacker, president of the Federal Bank of Richmond, said on Friday that positive economic trends make a case for raising interest rates sooner rather than later. The Fed’s policymaking body is set to meet in about two weeks, but it remains unclear whether it will move to raise rates at that gathering. Bloomberg

The Federal Reserve should begin raising interest rates sooner rather than later, the president of the Federal Reserve Bank of Richmond, whose territory includes the Carolinas, said on Friday.

Jeffrey Lacker expressed that view Friday morning in Richmond, Va., during a speech, “The Case Against Further Delay,” to the Retail Merchants Association.

In Lacker’s prepared remarks released by the Fed ahead of the retailers’ gathering, Lacker points to a variety of positive trends in the U.S. economy, including accelerated consumer spending and an improving labor market. Such trends make a strong case for raising interest rates, he said.

“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. “It’s time to align our monetary policy with the significant progress we have made.”

But Lacker also noted that he has not finalized his decision ahead of the Sept. 16-17 meeting of the Fed’s monetary policymaking body, of which Lacker is a voting member.

The U.S. central bank could move to raise interest rates at that meeting or leave them alone. Banks, investors, economists and many others will be closely watching to see whether the Fed will finally raise its benchmark short-term interest rate for the first time since 2006.

Below are some highlights from Lacker’s speech. You can read the full text of his speech here.

Consumer spending

“In my view, the most significant facts supporting an interest rate increase are related to household expenditures.

“ ... After an initial post-recession rebound, consumer spending growth averaged less than 2 percent at an annual rate for several years. In 2014, however, household spending accelerated, averaging over 3 percent for the year, only to fall back to a slower pace early this year. But that first quarter slowdown now seems largely attributable to temporary factors, such as unusually severe winter weather in many areas of the country. Spending growth has picked up again since then, growing at a 3.1 percent annual rate over the last three months.”

Housing market

“Residential investment has registered healthy gains this year. Housing starts year to date through July were up 11 percent over the previous year. Even though the rate of home building is rising from relatively low post-recession levels and is unlikely to return soon to a torrid pre-recession pace, the housing market has been making noticeable contributions to growth.”

Job market

“Earlier this year, as it began to prepare the public for an eventual rise in interest rates, the (Fed’s policymaking body) said it was looking for ‘further improvements in the labor market’ before an increase in interest rates would be appropriate. Those improvements have materialized: So far this year, the economy has produced an average of 213,000 net new jobs per month and the unemployment rate has fallen to 5.3 percent.”

“… Overall, I believe the evidence indicates that labor market conditions no longer warrant continuation of exceptionally low interest rates.”

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