The U.S. economy will expand at a decent clip this year as a recovery in housing and consumer spending offset troubles in commercial real estate, Richmond Fed President Jeffrey Lacker said on Friday.

Output expanded 2.2 percent in the third quarter following the deepest recession since the Great Depression. Despite the return to growth, the labor market remains severely depressed, with unemployment hovering stubbornly near 10 percent.

Still, Lacker argued the rebound would be sustained.

I think the most likely outcome is that the economy will grow at a reasonable pace this year, Lacker told a meeting of the Risk Management Association, in remarks that largely echoed a speech he delivered last week in Baltimore.

Considered one of the U.S. central bank's more hawkish members on inflation, Lacker, who is not a voter on the Fed's monetary policy-setting committee this year, sounded his usual note of caution about the prospects for inflation.

During the recovery period ahead we may face an increasing risk of inflation edging upward, he said.

The Fed cut benchmark U.S. interest rates to near zero in December 2008 and has held them there since, pledging to hold borrowing costs exceptionally low for an extended period to underpin the fragile recovery. It has also pumped over $1 trillion into the financial system to spur borrowing.

Some analysts believe that, with lending markets still operating sluggishly, the increase in bank credit cannot be inflationary. But Lacker argued that timing would be key in orchestrating an appropriate exit, which he says should come when growth is strong enough and well enough established.

Lacker also added his voice to the chorus of central bankers making the case against Congressional efforts to reform the Fed. Monetary officials argue that efforts to audit the institution's interest rate policies could lead to a decline in the Fed's credibility and a spike in inflation expectations.

I know it might sound self serving for a Fed insider to object to such changes, but I believe such moves would present very serious risks to the effectiveness of monetary policy.

(Editing by James Dalgleish)

Inflation