- Jeffrey Lacker, President of the Federal Reserve Bank of Richmond
Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, is concerned over the gulf of expectations between financial markets and the U.S. central bank over when interest rates might be raised and the pace of rate hikes over the next two years. Short-term interest rate markets have been pricing in for months a slower pace of interest rate increases compared to policymakers' forecasts. Lacker thinks that investors may be misled by the Fed's policy statement, which says that, even after the first rate hike, the Fed may keep rates lower than normal in the long run. This gap of expectations might be risky as misalignment may cause volatility in case traders have to adjust rapidly.
With the U.S economy growing 2.4% in the second quarter compared to the same period last year, central bankers continued to trim asset-purchase programme last month and said disinflation risks had subsided. Policy makers in June forecast announced they would lift the Fed funds rate above zero sometime next year, without specifying a month. However, Fed Chairwoman Janet Yellen reminded investors in her July testimony to Congress that if labour market improves more swiftly than the rate-setting committee expects, hikes in the federal funds rate would probably occur "sooner and be more rapid than currently envisioned."
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