The Federal Reserve’s aggressive quantitative easing program may have come to an end (for now), but that won’t stop the United States central bank from providing financial markets with cheap money and low interest rates. Or, in other words, stimulus.
Speaking in front of an audience at the Richmond Chamber of Commerce on Tuesday, Jeffrey Lacker, the Fed Richmond President, said that the punch bowl won’t be taken away after the central bank raises interest rates sometime this year. Instead, the Fed will simply “refill” it.
“In current circumstances, raising the funds rate target a notch or two is less like taking away the punch bowl and more like just slowing down the refills,” he stated. “We will still be spiking the punch–just not quite as rapidly as we have been.”
Lacker also discussed how the Fed will likely begin raising short-term interest rates at the Federal Open Market Committee (FOMC) meeting in June, though many are expecting the Fed to boost rates in September. Lacker cited a stronger labor market and greater business investments as reasons to justify a rate hike. He further projected that gross domestic product could grow two to 2.5 percent
Fed Chair Janet Yellen has reaffirmed a few times that the FOMC will not start raising rates at the late April policy meeting. Lacker is a voting member on Fed policy.
“A strong case can be made that the federal funds rate should be higher than it is now,” Lacker said in prepared marks. “Unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting.”
Interest rates haven’t been touched since Dec. 2008 when they were suppressed to nearly zero. The last time the Fed raised interest rates was in 2006, just prior to the economic collapse.
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