Esther George, president of the Federal Reserve Bank of Kansas City, is known as one of the more hawkish members at the Federal Reserve. On a number of occasions, she has publicly stated that, after keeping its benchmark federal funds rate near zero since December 2008, the time is fast approaching for the Federal Reserve to tighten up monetary policy and increase interest rates. One official who shares this view is Jeffrey Lacker, president of the Federal Reserve Bank of Richmond.

Mr. Lacker’s Past Views

Mr. Lacker tenure as president of the Federal Reserve Bank of Richmond began in August 1, 2004. In 2006, 2009, and 2012 he acted as a voting member of the Federal Open Market Committee, the body that sets the federal funds rate, and he is slated to become a voting member again in 2015. Mr. Lacker is perhaps best known for dissenting from his colleagues at every Committee meeting since 2012, including one where he voted to continue Operation Twist, a Federal Reserve program meant to lower long-term interest rates. In 2012, Mr. Lacker made a series of public statements concerning the possible negative effects of prolonged low interest rates. In May of that year, Mr. Lacker expressed his opinion on monetary stimulus, stating, “Some critics see this moderate pace of expansion as prima facie evidence that the Federal Reserve should provide more economic stimulus in order to boost growth. I disagree.” He went on to state, “Additional easing is unlikely to have much positive effect on growth prospects, but could well generate a sustained surge in inflation that would be costly to reverse.” Lastly, he explained his dissent from a Federal Open Market Committee decision in April 2012,stating, “My current assessment is that an increase in interest rates is likely to be necessary by mid-2013 in order to prevent the emergence of inflationary pressures.”

Mr. Lacker’s Views Today

Despite the fact that inflation is currently running below the Fed’s two percent target, Mr. Lacker’s stance on the need to raise interest rates remains the same. He also worries the popular belief that the Federal Reserve will raise interest rates at a slow rate in the coming years is incorrect. For example, according to trading activity on futures contracts for the federal funds rate, investors believe there is a 62 percent chance the rate will be at or below .75 percent by December 2015. In contrast to this figure, the most recent median projection by Federal Open Market Committee members is significantly higher, at 1.13 percent. Mr. Lacker believes the gap between the market’s expectations and the Committee’s projections could be a result of more than five years of keeping the federal funds rate at or near zero. In other words, the markets simply do not believe the Federal Reserve will raise the rates unless significant growth occurs in a number of different economic categories, something traders do not expect that to happen next year. They also remain skeptical of Fed pronouncements on rate increases, partially due to the Fed’s earlier change in guidance. At one point, the Fed went from alluding to raising interest rates when unemployment dropped to 6.5 percent to stating it will likely keep interest rates low for a “considerable time” after they conclude their quantitative easing program, scheduled to end in October. The disconnect in interest rate projections between the markets and Fed officials is troubling to Mr. Lacker, who worries about the potential for market volatility and investment losses if traders have to adjust quickly when the Fed does begin to raise rates.

Businesses of all types are keeping an eye on comments from Federal Reserve members and trying to gauge when the central bank will raise interest rates. This is especially important for senior housing participants, as low interest rates help fuel robust merger and acquisition activity in the sector, as well as large increases in the value of senior housing assets. Before interest rates rise, as both the markets and Fed officials project they will, senior housing providers and investors interested in obtaining additional capital to engage in wealth generating transactions should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different options it offers for acquisitions, joint ventures, debt refinancing, and for other purposes.

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