CHARLOTTE, N.C. - Richmond Federal Reserve Bank President Jeffrey Lacker Thursday night said that the expansion of the money supply that has resulted from the Fed's efforts to fight the financial crisis and recession was "warranted."

Noting that inflation has averaged 2% over the past several years, he said he "would give us good marks so far."

Lacker, answering questions following a dinner speech to the UNC Banking Institute, said it is appropriate for the central bank to expand the money supply when demand for money increases during a liquidity crisis.

He said this can be done through open market operations and that there is no longer a need for the Fed to play the traditional "lender of last resort" role and lend directly to financial institutions.

"When demand for money increases, increase the money supply ... but don't take a position by lending to individual institutions," he said.

In other comments, Lacker said that so far the impact on the U.S. economy of the European debt crisis "has been relatively minor" and he said best estimates suggest it will "remain minor."

But he said "there's always a risk of a hiccup, a speed bump in the process that could lead to some uncertainty and some pullback in spending that's broader that could pose a risk."

"So far it seems manageable," he added.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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