Fed's Lacker says case is strong for September rate hike

WASHINGTON (Reuters) - The case for a U.S. interest rate increase will be strong when Federal Reserve policymakers meet later this month, Richmond Fed President Jeffrey Lacker said on Wednesday.

Lacker will not have a vote on policy at the Fed's Sept. 20-21 meeting but he will participate in discussions, and his comments point to an ongoing debate within the U.S. central bank on when to tighten policy.

"It looks like the case for a rate increase is going to be strong in September," Lacker told reporters after a congressional hearing in Washington, arguing that America's strong labor market was reason to lift rates.

Kansas City Fed President Esther George, who will have a vote on policy this month, said during the hearing she believes the U.S. labor market is at or near full strength.

Fed Chair Janet Yellen said last month the case for rate increases was firming but did not say when such a move could happen, and other policymakers have urged more caution about rate hikes.

Asked about the debate within the Fed over the risks of an overheating labor market, Lacker said some policymakers were more open to allowing the jobless rate to fall lower than its current 4.9 percent.

"Reasonable people can differ on the costs and benefits of exploring whether maximum employment really corresponds to a lower unemployment rate than we are seeing now," he said.

(Reporting by Jason Lange; Editing by Chizu Nomiyama)