Fed's Lacker emphasises need to act pre-emptively on rates

The president of the Federal Reserve bank of Richmond emphasised the need to act "pre-emptively" to avoid unwanted instability in prices.

Speaking at the US Monetary Policy Forum in New York, Jeffrey Lacker drew a comparison between the situation during the 1960s and at present.

In comparison to that era, when the US war effort in Vietnam was in full upswing, Lacker argues that now there is much greater transparency when it comes to government spending.

"It’s hard to imagine a contemporary administration hiding a doubling of war spending from Congress and the secretary of the Treasury for any appreciable amount of time," he said.

Furthermore, since the 1990s a consensus has been built around the need for central bank independence (from politicians), he said.

US president Lyndon B. Johnson on the other hand was fond of berating William McChesney Martin, the Fed chair at the time, in public, whilst some Congressmen threatened to curb the Fed's remit.

"A key difference between the 1960s and today, however, is greater recognition of the importance of acting pre-emptively to combat inflation and the importance of central bank independence," he said.

"Again, this does not tell us how much at risk we are right now. Monetary policy in the 1960s makes for a sobering tale, but I believe we can avoid repeating those mistakes."