Fed official still favors 2015 hike but notes dimmer outlook
A voting member of the Federal Reserve's policy committee said Friday that he still thinks an interest-rate increase will be appropriate by year's end. But he acknowledged that the outlook for the economy appears cloudier than it did a few weeks ago.
Dennis Lockhart, president of the Fed's Atlanta regional bank, noted that the most recent economic figures have sent mixed signals, with higher risks than he had earlier forecast. Notably, the government said last week that employers cut back sharply on hiring in September and added fewer jobs in July and August than previously thought.
"While I have not changed my basic outlook, very recent data have not provided much confirmation that my narrative still holds," Lockhart said. "I perceive a touch more downside risk today than I saw some weeks ago."
In particular, Lockhart said he will closely review consumer activity before deciding how to vote on whether to raise rates at one of the Fed's two final meetings of 2015.
For now, he said, he thinks the economy's progress remains "satisfactory."
"I continue to feel that cumulative progress is consistent with liftoff relatively soon," Lockhart said in his remarks to the annual meeting of the Society of American Business Editors and Writers.
The Fed has kept its key rate at a record low near zero since December 2008. Many had expected the first rate hike to occur in September. But minutes of that meeting released Thursday revealed concern that a sharp slowdown in China, which roiled markets this summer, could weaken the U.S. economy, and that inflation could remain excessively low.
The Fed voted 9-1 at that meeting to keep rates unchanged. Lockhart voted with the majority.
Lockhart is one of five regional bank presidents with a vote this year on the Federal Open Market Committee, the panel of Fed bank presidents and board members that meets eight times a year to set interest rate policy.
The Atlanta Fed president is a moderate, outside both the "dovish" camp that includes Yellen and others who focus more on unemployment and the "hawkish" camp of policymakers who worry mainly about inflation risks.
During a question-and-answer period, Lockhart stressed that the Fed's policymakers will be studying the economic data before the next two meetings. The final meetings this year will be Oct. 27-28 and Dec. 15-16.
Before the December meeting. the Fed will have data on job growth in October and November, inflation data for September and October and the first two estimates for overall economic growth in the third quarter. The data on consumer spending, Lockhart said, may be the most telling.
Speaking of his own views, he said, "I am slightly less confident today than I was six weeks ago."
He added: "The argument for October or December (to raise rates) is a committee decision, and I can't anticipate where the committee will be in a few weeks."
Many economists say the weak jobs report for September released last week makes an October rate hike unlikely. Some still foresee an increase in December, others not until next year.
When the Fed does start raising rates, something it has not done in nine years, it will eventually mean higher rates for consumer and business borrowers. But Fed officials, including Chair Janet Yellen, have stressed that the rate increases will likely be very gradual, meaning that rates would still remain near historic lows for a while.
Lockhart said that trying to interpret the recent twists and turns in the economy has been like riding a roller-coaster.
"The ambiguity of the moment reinforces the need to closely watch the vital signs of the economy over the coming weeks to determine if the outlook has changed," Lockhart said.
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