Interest rates likely to remain low, inflation could tick upward

The benchmark interest rate will probably remain near zero for the near future as the economy recovers.

Federal Reserve Bank of Richmond President Jeffrey Lacker told reporters Monday, “I’m comfortable with rates where they are now. My feeling on rates will depend on how the data comes in and what I hear from my colleagues.”

Lacker, who doesn’t have a vote this year on rate decisions, said, ”You have some surges, some slower periods. It’s just going to be a choppy recovery,” he said, according to news reports.

Federal Reserve officials have agreed to leave rates low and have said they would continue to do so “for an extended period of time” because tight credit is holding back consumer spending, which accounts for 70 percent of the economy. 

The central bank also isn’t likely to consider any future economic stimulus, he said. 

“For me, the consideration of further easing is very far away,” Lacker said. “It would take a very substantial, unanticipated adverse shock” for the Fed to take additional steps. 

As the nation recovers from the financial crisis and recession, Lacker said the stock market has overreacted to economic news that has fallen below forecasts. 

“I think what’s been happening is some market participants are overreacting to a couple of reports that have been a little bit below what people expected,” he said today during the opening of a new exhibit in Richmond on the Fed’s history. “We had some reports better than expected a couple of months ago. I think this is going to be a recovery that’s like that over time.”

Although inflation has remained stable, prices are likely to increase into the 1.5 to 2 percent range by the end of the year, minimizing the chances of deflation, Lacker said.