The Fed: Fed’s Lacker makes case for higher interest rates soon


Richmond Fed President Jeffrey Lacker

Interest rates will need to move higher unless employment growth “slows significantly” in coming months, said Richmond Fed President Jeffrey Lacker on Friday.

In a speech to two economist trade associations in Richmond, Lacker said that a well-known prescription for Fed policy, known as the Taylor Rule, is already signaling the need for higher rates.

The traditional Taylor rule recommended a 3.3% interest rate in the second quarter, “significantly higher” than the current 40 basis point fed-funds rate, he said.

With the outlook for continued job growth and higher inflation, this will only widen the gap between current low rates and the Taylor Rule prescription, Lacker said.

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