Top Federal Reserve official Jeffrey Lacker said Jan. 19 he sees the economy expanding by 2.50% - 2.75% this year, while inflation remains the "predominant" risk.
Consumer spending and business investment would show continued strength, partially offset by a cooling housing market, the hawkish Richmond Fed president said in a speech to risk managers in Virginia. "Growth will start the year on the low side, but should be back to about 3% by the end of the year," Lacker said. "So my best guess right now is that real GDP (gross domestic product) growth will average between 2.5% and 2.75% in 2007."
Lacker identified two principal risks to this outlook: a further deterioration in the housing market, and "the substantial uncertainty surrounding oil prices."
The U.S. economy cooled last year, hurt by an end to the housing boom of recent years. In August, the U.S. central bank called off a long-running series of hikes to interest rates Lacker, however, voted against the August decision and continued to press for rate hikes at subsequent meetings. This year, he is not a member of the bank's policy-setting federal open market committee (FOMC).
The Richmond Fed president said inflation had been "disappointing" last year, running at more than two percent according to the central bank's preferred measure. "In view of the recent record, it will take several months worth of data to provide statistically convincing evidence of a moderation in inflation," he said. "In the meantime, the risk that core inflation surges again, or does not subside as desired, clearly remains the predominant macroeconomic policy risk."
Copyright Agence France-Presse, 2007