In a speech titled “The Case Against Further Delay” Friday morning in Richmond, Va., Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, gives what he called “the main reasons to begin raising interest rates sooner rather than later.” Sooner would be the mid-September meeting of the Federal Open Market Committee (FOMC), of which Lacker is a voting member.

In his view, the most compelling reasons to lift the interest rate are related to household expenditures:

After an initial post-recession rebound, consumer spending growth averaged less than 2 percent at an annual rate for several years. In 2014, however, household spending accelerated, averaging over 3 percent for the year, only to fall back to a slower pace early this year. But that first quarter slowdown now seems largely attributable to temporary factors, such as unusually severe winter weather in many areas of the country. Spending growth has picked up again since then, growing at a 3.1 percent annual rate over the last three months.

As consumption grows, so should interest rates, according to Lacker. A “negative real interest rate is unlikely to be appropriate for an economy with persistent consumption growth at the rate we are now seeing.” He also noted growth in business spending on capital growth and nonresidential construction, both signs that business investment “is likely to contribute positively to growth growing forward.”

Lacker noted that more than 12 million jobs have been added to the economy since early 2010 and that the U.S. economy has produced an average of 213,000 net jobs a month since the beginning of the year. He referred to the “churn rate” in the labor markets:

Year over year, vacancies are up 11 percent, the hiring rate is up 7 percent and the rate at which workers voluntarily leave their jobs, a signal of workers’ confidence in their job market prospects, is up 11 percent.

On the inflation front, Lacker noted that the Fed’s 2% target has already been met and, since the beginning of the year, exceeded to where personal consumption expenditures now run at 2.2%. Calling inflation a “lagging indicator” Lacker said “the forces that lead to rising inflation can build up before they are apparent in the data.”

Saying that he has been willing to wait for confirmation that the factors holding down real growth and inflation late last year and earlier this year were transitory, he is now satisfied that it is “time to align our monetary policy with the significant progress we have made.”

Full text is available here.

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