An October rate rise is possible, Fed´s Lacker says

The US central bank risks falling 'behind the curve' a top official said on Thursday, pointing to the acceleration seen in household consumption over the last year.

The American consumer was not pulling back and neither were the country´s businessmen. "We are on track", Jeffrey Lacker, the president of the Federal Reserve bank of Richmond, told the Wall Street Journal´s John Hilsenrath in an interview.

That meant a first interest rate increase at the Fed´s October policy meeting was possible. By then rate-setters in the US would have the latest employment and consumption figures under their arm.

“I don’t see why not,” Lacker told the newspaper.

The central banker also said the Fed must be aware of the risk that keeping interest rates "too low" breeds financial excesses.

He drew a comparison to the situation in 1998, when the central bank lowered rates in response to instability in Asia and Russia, possibly contributing to the tech-bubble that followed afterwards in financial markets.

Faster consumer spending tends to go hand-in-hand with higher inflation-adjusted interest rates, which were at zero at the time the article was written, Lacker emphasised.

Lacker was the sole dissenter at the 16-17 September FOMC policy meeting.