The Federal Reserve should seriously consider pulling back on its $600 billion stimulus program given stronger growth and a brighter jobs picture, Richmond Fed President Jeffrey Lacker said on Tuesday.
Despite a report last week showing only 36,000 jobs were created in January, Lacker said other measures were pointing to a firmer economic recovery and better employment prospects.
"An array of forward-looking indicators of employment trends point to continued labor market improvement," Lacker, a known inflation hawk, told a business gathering at the University of Delaware.
In November, the Fed launched a controversial bond-buying program to support a fragile recovery. Lacker noted the central bank had committed to regularly reviewing the pace and size of purchases.
"The distinct improvement in the economic outlook since the program was initiated suggests taking that reevaluation quite seriously," he said.
Lacker expects the U.S. economy, the world's largest, to expand by about 4% in 2011, a rate he said should be sufficient to boost hiring and lower unemployment.
The U.S. jobless rate fell to 9.0% in January.
Fed Chairman Ben Bernanke made clear in remarks last week that he does not consider the progress sufficient to declare victory and begin withdrawing monetary support.
While many Fed officials consider inflation to be too low at the moment, Lacker reiterated his case that prices are actually "low and stable."
Indeed, he said, it was still unclear whether recent spikes in commodities prices would have longer-lasting effects on U.S. consumer prices.
"The effect on overall inflation could be transitory, or could persist if firms, encouraged by accelerating demand growth, pass input prices on to their customers," Lacker said.
"Such pickups in inflation are common at this point in business cycle upturns, and would be consistent with the expected inflation rates implied by prices of inflation-indexed U.S. Treasury debt," he added.
Some analysts blame the Fed's ultra-loose monetary stance for boosting financial market liquidity and helping to fuel runaway gains in commodities that have pushed up the costs of basic goods like food and energy.