Fed’s Lacker says U.S. may be close to maximum employment

‘Pretty Tepid’

“The numbers have been pretty tepid, we’re definitely experiencing a slowdown,” Lacker said. “I don’t think this is fatal. I don’t think this is pushing us back into a recession right now.”

Lacker has said the Fed will probably have to raise rates in mid-2013, contradicting the FOMC’s statements this year that economic conditions will probably warrant “exceptionally low” levels of the federal funds rate at least through late 2014. U.S. central bankers cut the benchmark lending rate to a record- low range of zero to 0.25 percent in December 2008.

A weaker-than-forecast June jobs gain in the U.S. will lead the Fed to keep its benchmark interest rate at almost zero until the middle of 2015, according to reports from Goldman Sachs Group Inc. and Bank of America Corp., two of the 21 primary dealers that trade directly with the central bank.

2014 Projection

Lacker said the Fed’s late-2014 projection “is a forecast,” and not a promise.

“If I had to choose today, I’d say it may be late 2013,” Lacker said. “It’s more likely we’re going to need to move a little later in 2013, but it could come sooner.”

Fed officials on June 20 lowered their forecasts for growth and employment while noting “significant downside risks” to the economy. Policy makers reduced their so-called central tendency estimate for 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April. Estimates for 2013 centered around 2.2 percent to 2.8 percent, compared with 2.7 percent to 3.1 percent in the previous forecast.

The central tendency forecasts exclude the three highest and three lowest estimates.

Lacker said in an April 4 Bloomberg Television interview that growth will probably accelerate to above 3 percent next year, warranting a boost in the benchmark interest rate. Economists estimate that GDP will increase by 2.2 percent this year and 2.4 percent next year, according to the median of 70 estimates in a Bloomberg survey.

Fewer Workers

American employers added fewer workers to payrolls than forecast in June, and the jobless rate stayed at 8.2 percent as the economic outlook dimmed.

The Fed releases minutes of the June meeting on July 11. The next FOMC meeting is set for Aug. 1 in Washington.

Lacker has been president of the Richmond Fed since 2004 and is the second-longest serving among all 12 regional bank presidents after Cleveland’s Sandra Pianalto. He votes on monetary policy in 2012 as part of the rotation among Fed bank presidents.

Bloomberg News

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