Ex-Fed’s Lacker: Central bank may need to raise rates to 5% to control inflation

Former Richmond Fed President Jeffrey Lacker said in an MNI interview on Monday, “my sense is they have to go to 5% before they can really think they're at neutral.”

Additional quotes

"Even at the aggressive current pace of 50 bps per meeting, "they're not going to hit that until the middle of next year."

"Fed officials have said they would like to push official rates, currently in a 0.75% to 1% range, to more neutral levels "expeditiously."

"But policymakers have defined neutral in nominal terms on an assumption that the inflation rate eventually returns to the Fed's 2% target. That's a big assumption."

"Three percent is fine as a neutral rate if inflation already is 2%. But if not, then 3% isn't neutral. What is neutral depends on what the current inflation rate is, what the going rate is, what it's expected to be in the next couple of quarters."

"By the September meeting the data was very clear that they needed to move. But they were hamstrung by their forward guidance and by this commitment to taper asset purchases. That's what held them up to March."

"I think they're six months behind the curve. They're making up for it with speed and haste. But it's not an immediate offset because you can't take back the fact that expectations have seeped into markets, wage rates accelerated over the winter and firms have become accustomed to pricing in cost increases, passing them on as price increases."

"I'm somewhat pessimistic about their ability to bring inflation down without causing a recession. It strikes me as highly unlikely that they're going to be able to do that."

"The signs of inflation coming off its peak are extremely tentative, nothing to take to the bank. It seems very unlikely that they're going to get inflation down."