Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said on Thursday that he wants the U.S. central bank to hold off raising short-term rates until well into next year, in a bid to gain confidence the economic recovery will endure.
When it comes to boosting rates off of the current near-zero levels, “I continue to expect conditions for liftoff to ripen by the middle of 2015 or a bit later,” Mr. Lockhart said. But he added the timing of Fed actions “isn’t foreordained. The performance of the economy in the coming quarters should and will dictate the timing of liftoff.”
Mr. Lockhart told reporters after a speech, “I’m really looking for some time to pass that accumulates evidence we are on the solid track.” Raising rates early next year would be “a bit early and premature,” and it would raise the risk the Fed might have to “reverse course” if it has misjudged the underlying vigor of the economy, he said.
Mr. Lockhart spoke before a local group in Jackson, Miss. He was weighing in after last week’s Fed policy-setting Federal Open Market Committee, where officials decided to press forward with winding back the Fed’s bond-buying stimulus, as they continued to indicate they won’t raise the cost of borrowing in the U.S. economy for a “considerable time.”
Most Fed officials say the central bank won’t start to end its ultra-easy money policy until next year, with key officials favoring holding off until around midyear. Mr. Lockhart is considered to be a centrist on the Federal Open Market Committee and a bellwether of Fed thinking. His views on Thursday underscored the idea that rate increases still lie well into the future.
That said, Fed officials have been working to drive home the point that the monetary-policy outlook isn’t driven by a calendar date, and whatever action the institution takes will be determined by how the economy performs. At the same time, several Fed officials have made the case that a better-than-expected pace of improvement in job gains could move forward the timing of rate increases.
Mr. Lockhart told reporters he remains comfortable with using the “considerable time” language for now. He added that there is no perfect way to describe the outlook for monetary policy, and any change the Fed makes will be seen as a signal by market participants of a shift in future course of central bank policy.
Mr. Lockhart was broadly upbeat about the economy in his speech, noting “the recent run of data has been encouraging in many respects.” But he also said more progress needs to be made, in a climate that is bounded by considerable uncertainty.
The official said U.S. growth likely will come in at around 3% over the second half of the year and stay at that level in 2015. He sees further job-market improvements coming at a steady pace and reach full employment in late 2016 or early 2017, while noting the labor market is still some distance from reaching the levels he would like to see.
Mr. Lockhart expects to see the low inflation rate continue to tick higher toward the Fed’s 2% goal, but noted its current weakness is a sign the economy still needs to heal. He said he isn’t worried about a break out in inflation and remains more concerned about falling persistently short of the Fed’s inflation target.
Mr. Lockhart addressed rising concerns that financial markets may be overheating after several years of super-aggressive Fed policy. Holding off of rate increases, he said, is unlikely to bring on a systemic financial event. Also, “I take comfort in the much strengthened defenses of the banking system, financial intuitions in general, and financial regulators.”
He told reporters that his main focus is on the markets’ fundamental resilience, not whether they go up or down. “It’s really the conditions in which you would get a really extreme reaction in the markets that we should concern ourselves with. I don’t think those conditions are yet present or are part of the picture,” Mr. Lockhart said.
He also told reporters he was watching the dollar, which has been rising and raising some question about its possible negative influence on U.S. growth.
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