Reserve Bank Leader Says Higher Interest Rates May Be Coming

June 16, 2008

By David Dykes – Greenville News

The president of the Richmond Federal Reserve Bank said Monday the U.S. economy hasn’t shown sharp, widespread reversals that define a recession.

But inflation is “unacceptably high” and it makes “eminent sense” for the Fed, which has cut short-term interest rates to bolster the economy, to consider raising rates to focus on the inflation risk, said Jeffrey M. Lacker, who has been president of the Richmond Fed since 2004.

The downside risks to growth have “diminished appreciably,” Lacker said.

“Just as easing policy aggressively in response to emerging downside risks made eminent sense, withdrawing some of that stimulus when those risks diminish makes eminent sense as well,” he said.

Lacker, 52, spoke to Upstate business leaders here as part of his visit to the region, which is served by the Fed’s Richmond bank.

In response to a question after his 25-minute speech, Lacker said he supports a free-trade approach even though lowering U.S. trade barriers can negatively affect U.S. workers. Such steps also can have broad benefits, Lacker said.

His comments drew opposition from Roger Milliken, the Spartanburg textile magnate who has opposed free-trade trade initiatives because he believes they imperil domestic manufacturers.

“We’re in total disagreement on that,” said Milliken, who heard Lacker speak and talked with him afterward.

Earlier, Lacker toured BMW Manufacturing Co. near Greer and met with company officials and executives. Later in the afternoon, he went to Clemson University’s International Center for Automotive Research for a first-hand look.


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