Further rate hikes still logical in 2016, Fed´s Lacker reportedly says

The president of the US Federal Reserve bank of Richmond on Wednesday held out the possibility of further interest rate hikes in 2016, with some market commentary interpreting his words to mean that several increases might still be on the table.

In a speech delivered at the Johns Hopkins business school, Jeffrey Lacker referenced the commonly-accepted idea, widely attributed to Swedish economist Knut Wicksell, that real short-term rates should track the natural rate.

He also pointed out that estimates of the inflation-adjusted, or so-called 'real', natural rate of interest pegged it "at or just above zero".

Hence, the possibility of multiple additional interest rate hikes in 2016 still existed, some market commentary appeared to infer.

"In fact, this perspective would bolster the case for raising the federal funds rate target," he said, according to the text of his speech.

That might have been a logical deduction given that the target range for the Fed funds rate was standing at between 0.25% and 0.75% when he spoke, while consumer price inflation was running at 1.4% year-on-year in January, although some economists were expecting the latter to edge slightly lower over the course of the year ahead.

Lacker did not specify which measure of inflation ought to be used.

“I still think prospects for rate increases this year is the logical [view],” Lacker also said, Reuters reported, referencing a presentation from the regional Fed president.

Revisions to fourth quarter estimates of US gross domestic product growth were expected to reveal that the GDP price deflator advanced at an annualised pace of 0.8% during the final three months of 2015.

The headline deflator for personal consumption expenditures, set for release on the day before, and for the month of January, was expected by economists to reveal a rise of 1.0% year-on-year.

"Since the financial crisis, policymakers and citizens alike have looked to the Fed to foster both financial stability and economic growth, and our nation’s central bankers have gone to great lengths in an effort to achieve these objectives.

"But the role of the Fed is not to prevent every recession or to soothe every instance of financial instability, nor is it within its power to do so: Central banks garner too much praise when times are good and too much blame when times are bad," he concluded.