Federal Reserve Bank of Richmond President Jeffrey Lacker said the main interest rate should be raised in June amid a stronger job market, consumer-spending growth and inflation heading back toward the Fed's target.
"A strong case can be made that the federal funds rate should be higher than it is now," Lacker, who votes on policy this year, said Tuesday in the text of remarks at the district bank in Virginia. "Unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting."
Lacker said consumer spending has gathered momentum and business investment should contribute to growth this year, putting economic growth in the 2 percent to 2.5 percent range. In his last economic outlook speech in January, he said growth in 2015 may be around 2.25 percent, while "there are reasons to believe" it could be as high as 3 percent.
Policy makers opened the door March 18 to an interest-rate increase as soon as June, while also indicating in their forecasts it will go slow once it gets started. Fed Chair Janet Yellen said last week interest rates will probably be raised in 2015 and made the case for a cautious approach to subsequent increases that will keep borrowing costs low for years to come.
Officials this month also cut their median estimate for the main rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in December forecasts. Since 2008, the Fed has held rates near zero and more than quadrupled its balance sheet to about $4.5 trillion in three rounds of asset purchases.
Even after several rate increases, the Fed will still be supplying "quite a bit of stimulus" to the economy for a "considerable period," Lacker said. He said inflation will rebound as the dollar peaks and energy prices start to rally.
Lacker said inflation is "likely to begin moving back toward 2 percent this year" as the decline in energy prices proves transitory. The Fed's preferred price gauge rose 0.3 percent in February from a year earlier and has been below the Fed's 2 percent objective for almost three years.
Sluggishness in the housing market is unlikely to change quickly, and homebuilding probably won't be a "major contributor" to economic growth this year, Lacker said.
Lacker, 59, spoke on Tuesday to a forum of regional business leaders. He became president of the Richmond Fed in 2004 after five years as director of the regional bank's research department.
