Fed Lacker Urges Rate Hike to Prevent Mistakes from Past

The Federal Reserve should heed the lessons of the 1960s and raise interest rates to prevent inflation from accelerating suddenly and uncomfortably, one of the Fed’s most hawkish policymakers suggested on Friday. Richmond Federal Reserve Bank President Jeffrey Lacker did not comment directly on the stance of monetary policy or on the appropriate timing or pace of future rate hikes in remarks prepared for delivery to a University of Chicago Booth School of Business conference.

But, in a discussion of the policy mistakes of the 1960s that allowed inflation to take hold and spiral out of control, Lacker suggested strongly today’s Fed would do well to avoid the trap of believing that just because inflation has been stable for so long, it will continue to be so.

Though now, as then, it is difficult to know exactly how much slack remains in the economy, and now, as then, fiscal policy is uncertain, leaving rates too low for too long can be disastrous, he said.

Then-Fed Chair William McChesney Martin, Lacker said, actually did understand that only timely rate hikes would be enough to keep inflation down, but “the problem may have been less a lack of understanding and more a lack of political will.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza