Fed's Lacker warns inflation could pick up next year

COLUMBIA, South Carolina (Reuters) - The Federal Reserve's latest stimulus plan will not do much to boost growth and raises the risk of inflation next year, Richmond Fed Bank President Jeffrey Lacker said on Tuesday, echoing remarks he made last week.

"It is unlikely that the Federal Reserve can push real growth rates materially higher than they otherwise would be, on a sustained basis," he said in a speech to a business group.

"I see an increased risk, given the course the (Fed's policy) committee has set, that inflation pressures emerge and are not thwarted in a timely way. I see material upside risks to inflation in 2014 and beyond, given the current trajectory for monetary policy," he said.

The Fed has held overnight interest rates near zero since December 2008 and bought about $2.4 trillion in bonds to drive down borrowing costs and spur growth. It plans to continue buying bonds until the outlook for employment improves.

A report on Friday showed the economy created 155,000 jobs in December, but the unemployment rate held at a lofty 7.8 percent.

Most Fed officials think inflation is unlikely to accelerate with so much slack in the labor market. Lacker, a noted inflation hawk who dissented at each Fed meeting last year, still hammered home his warning of risks to price stability.

In comments to reporters after his speech, he said he did not foresee a near-term quickening of inflation of "very large proportions" but warned that things could change next year.

"I see a risk of falling behind the curve not this year, but perhaps in 2014 and beyond," he said.

The Fed targets inflation of 2 percent. Over the 12 months through November prices were up only 1.4 percent, according to the central bank's preferred gauge, with so-called core prices up 1.5 percent.

At the same time, uncertainty over the course of U.S. fiscal policy has restrained economic growth, contributing to the lackluster nature of the recovery from the 2007-2009 recession. The tepid recovery has sparked debate over whether the economy has throttled back on a longer-term basis.

Lacker, who does not have a vote on Fed policy this year, said he expected a "significant amount of fiscal uncertainty will persist well into the year," but that longer-term prospects were brighter.

"We've had decades here and there with lower growth than average, and we've had decades with higher growth than average," he said. "I don't think the last three years should really discourage us about the longer-run prospects.

"If you look at the sources of growth it's new ideas and it's implementing them. This is a great place to implement innovations," Lacker said.

"I'm fundamentally optimistic because I think the fundamental ingredients of growth are there. We're just experiencing some impediments that are slowing things down."

(Reporting By Rick Rothacker; Writing by Pedro Nicolaci da Costa and Tim Ahmann; Editing by Neil Stempleman and Andrew Hay)