By Pedro Nicolaci da Costa
FRANKFORT, Kentucky (Reuters) - Just because prices are not rising very rapidly does not mean the U.S. economy will veer into deflation, Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday.
Lacker said he was comfortable with the current rate of price rises, suggesting he may have misgivings about the central bank's characterization earlier this week of inflation as "somewhat below" levels consistent with the Fed's mandate.
"I don't see the risk of an outbreak of deflation as very high at all right now," Lacker, an inflation hawk, told reporters after a speech.
"It's quite possible for inflation to run between 1 percent and 1-1/2 percent for quite some time without us spiraling into deflation," he said.
Lacker's comments suggest Fed Chairman Ben Bernanke will have his work cut out for him in nurturing unanimity within the central bank if he decides the U.S. economy is weak enough to warrant further monetary easing.
With interest rates already effectively at zero, the Fed is debating ramping up its purchases of longer-term debt to bring rates even lower and spur lending in an economy that is still sputtering along at a subpar pace.
During the crisis, the Fed already lapped up $1.7 trillion in government and mortgage-related securities.
But some officials are skeptical of taking such unconventional measures any further, worrying they may not be effective and raise the threat of future inflation or other financial imbalances.
The Fed took no action earlier this week, but many investors interpreted their pessimism as signaling more bond buying may be in store in coming months.
Lacker, who is not a voter this year on the Federal Open Market Committee but will be next year, said he expects the U.S. unemployment rate, currently at 9.6 percent, to come down only slowly.
He did not appear to think a double-dip recession was a major risk, saying he expected an annual growth rate of about 2 percent in the second half of this year, and then accelerating next year.
Lacker skirted more direct questions about the policy outlook, saying he would rather not make such comments so recently after a policy meeting.
In his prepared remarks, Lacker focused on lessons about financial stability from the 2007-2009 crisis. He argued that uncertainty over whether or not the government would bail out large financial institutions contributed to contagion.
