Fed’s Lacker sees possible rate rise this year

WASHINGTON (Reuters) – The Federal Reserve could raise interest rates by the end of the year to curb rising inflation, a top Federal Reserve official said on Friday.

“It wouldn’t surprise me if we needed to act before the end of the year,” Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said in an interview with CNBC, adding that inflation is a bigger risk to the economy this year than last.

Lacker, who is considered an inflation hawk, said he did not think the central bank was behind the curve on inflation already, as some have suggested, but “the next nine months is going to prove critical for us. I think that is where the danger of getting behind the curve is going to be highest in this cycle.”

The government reported earlier this week that the personal consumption expenditures price index rose 0.4 percent in February, the fastest pace since June 2009, after gaining 0.3 percent in January.

The so-called core index, which strips out volatile food and energy prices and is closely watched by Fed officials, rose just 0.2 percent in February.

Lacker said he had not yet made up his mind on whether to cut short special stimulus measures the Fed has taken to boost the economy, often referred to as a second round of quantitative easing, or QE2.

“At some point the sequence is going to be: we obviously stop that and we begin withdrawing monetary stimulus through not reinvesting the mortgage-backed securities proceeds, and then going further and beginning to sell assets, and at some point raising interest rates,” Lacker said.

“The exact sort of sequencing of that is something we are hashing out and trying to think through,” Lacker said.

(Reporting Corbett B. Daly and Glenn Somerville; Editing by Leslie Adler)

Fed’s Lacker sees possible rate rise this year