Investing.com – The head of the Federal Reserve (Fed) Bank of Richmond Jeffrey Lacker argued for the return of the policy tightening on Tuesday and suggested that interest rates should already be at least 1.5%, compared to the current range of 0.25%-0.50%.
In a speech delivered to the West Virginia Economic Outlook Conference in Charleston, West Virginia, Lacker stressed the need for “pre-emptive” action to combat future inflation.
He noted that inflation remained below the Fed’s 2% target but pointed out that it had moved back toward that goal and that inflation expectations remained anchored.
“A benchmark of the Fed’s behavior in past periods of relatively successful monetary policy makes a strong case for raising the Fed’s policy interest rate above its current low level,” Lacker argued.
“While inflation may seem like a distant concern right now, history suggests that pre-emptive increases in the federal funds rate can help avoid the emergence of a situation that requires more drastic action after the fact,” he explained.
Lacker pointed to history and argued that, with current levels of inflation and unemployment, the rates should be “much higher”.
“Even adjusting for the possible evolution of key parameters in those benchmark relationships, our policy rate should be 1.5% or more by now,” he said.
Lacker is well known for his hawkish stance and does not have a vote on monetary policy this year.
Nevertheless, the greenback ticked extended gains after the remark. Specifically, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.62% to 96.24 by 8:34AM ET (12:34GMT), compared to 96.16 before the speech was delivered. The dollar hit session highs at 96.26 on the back of Lacker's comments.
To the contrary, gold extended losses, hitting session lows of $1,294.50. The precious yellow medal was last down 1.17% at $1,297.35.
Meanwhile, markets ticked up the odds of a rate hike in December to 62.5%, from 61.2% earlier in the day, according to Investing.com's Fed Rate Monitor Tool.