Prices can rise in weak job market: Fed's Lacker (by Greg Robb)

WASHINGTON (MarketWatch) - The lesson of the last economic recovery in 2003 and 2004 is that inflation can flare despite high unemployment, said Jeffrey Lacker, the president of the Richmond Fed on Thursday. In late 2003, the economy was picking up but unemployment was stuck at high levels. Economists were forecasting inflation to diminish and the Fed did not hike rates until the end of June 2004. But overall inflation soon rose to 3% where it stayed on average through 2007, Lacker said. "Four years of 3% inflation may not have been the worst of all possible outcomes, but I do not consider it a success," Lacker said. The argument is relevant to today because many dovish members of the Fed are pointing to the weak labor market as a reason for the Fed not to rush to exit from its accommodative monetary policy stance.