Federal Reserve Bank of Atlanta President Dennis Lockhart said investors’ view that the central bank will raise interest rates in September seems appropriate, with economic data poised to pick up after a weak first quarter.
“That is reasonable alignment with what I believe to be the likely policy outlook,” Lockhart told reporters after a speech in Baton Rouge, Louisiana. “I am still of the view that the conditions will be appropriate in the middle of the year” for a rate increase.
“All meetings are in play, including June,” said Lockhart, who votes this year on the policy-making Federal Open Market Committee.
The Fed last month repeated it plans to raise interest rates when it sees further labor-market improvement and is “reasonably confident” inflation will rise back to its 2 percent goal over time.
The payrolls report for last month, to be issued Friday, will likely be better than March, when “we were surprised” that just 126,000 jobs were added, Lockhart told reporters. “I view it as a very important one to tell us about the growth momentum in the economy,” Lockhart said.
Inflation, excluding food and energy, has shown “some improvement. I’m encouraged but it is a little early to say” that inflation is rising back toward the Fed’s 2 percent target, Lockhart said.
Asked about Chair Janet Yellen’s characterization of stock valuations as “quite high,” Lockhart said market prices tend to correct on their own. “I don’t at this moment have reason to be intensely concerned about the valuation level of the equity markets,” he said.
In the text of his speech, Lockhart said he was becoming concerned about lackluster consumer spending.
“Consumers seem to be behaving cautiously in most categories of spending,” Lockhart said. “Recent consumer behavior is something of a puzzle,” and “the outlook I’ve laid out depends heavily on the health of consumer spending.”
The benchmark federal funds rate has been kept near zero since December 2008 as the FOMC battled the worst recession since the Great Depression and then sought to keep the expansion going.
“Early estimates of the current quarter’s rate of growth are disappointing,” Lockhart said to the Baton Rouge Rotary Club. “I’m not overly concerned, however” because it’s too early to read too much into the data, he said.
“The underlying fundamentals are strong enough to propel the economy along a growth path that delivers a bounce-back in the second quarter followed by a resumption of a pace of growth between 2.5 and 3 percent,” he said.
A rash of bad economic news so far this year was capped by a Commerce Department report that U.S. gross domestic product rose at a 0.2 percent annualized pace in the first three months of 2015. Economists blamed part of the poor performance on harsh winter weather and delays at West Coast ports due to a since-ended labor dispute.
Still, second-quarter growth was tracking at just 0.8 percent on May 1, according to the Atlanta Fed’s estimate. Private estimates have been above 3 percent.
In addition, a decline in oil prices has hurt investment, and a strong U.S. dollar has hindered exports, Lockhart said.
The Atlanta Fed leader said first-quarter weakness has been common in the past five years. “Since 2010, the first quarter has averaged 0.6 percent annualized growth while growth over the remainder of the year has averaged closer to 3 percent,” he said.
A former Georgetown University professor, Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi and Tennessee.