It would be better for the U.S. central bank to err on the side of waiting too long to raise interest rates for the first time since 2006, said David Altig, research head at the Federal Reserve Bank of Atlanta.
“In the environment of the U.S. as it is, it’s more costly to be too soon than it is to be a little too late,” he said in an interview during a conference in Madrid Wednesday. “It’s never a question of whether you are going to get the timing wrong, you probably are,” he said, “The question is how wrong and what direction you think it’s most costly to be wrong.”
Most economists in a Bloomberg survey late last month predicted the central bank will start tightening in September, rather than the meeting of the policy-setting Federal Open Market Committee next month. Altig, echoing recent comments by his boss, Atlanta Fed President Dennis Lockhart, suggested that he saw things the same way.
Liftoff “feels most probable somewhere in the late summer than the early summer, but early summer is not out of the question,” Altig said. “Even after we move, we don’t expect to move all that quickly. We’re going to be data dependent.”
The Fed says it will raise its benchmark overnight rate -- which has been near zero since December 2008 -- when it sees further labor-market improvement and is “reasonably confident” inflation will rise back to its 2 percent goal over time.
Officials expect the economy to resume moderate growth after a weak first quarter. This assumes stronger consumer spending as households take advantage of lower energy prices.
“The real key in the pick up as we go forward through the rest of the year has to be consumer spending,” Altig said. “Consumer spending was notably weak relative to any kind of measure.” His remarks were prior to the release of Commerce Department figures showing retail sales were unchanged in April after a revised 1.1 percent gain the previous month.
Daniel Sullivan, director of research at the Chicago Federal Reserve, also attended the conference and said that he expected a rebound in the economy after the “disappointment” of the tepid first three months.
“The fundamentals remain pretty good, especially the fact we’ve had strong employment growth,” he said in a separate interview. The U.S. “had a little bit of a worry in March perhaps, but the April numbers bounced back in a relative good way.” U.S. employers added 223,000 new jobs in April after a disappointing 85,000 the previous month, while the jobless rate declined to 5.4 percent.
“The U.S. economy has a little bit of room to grow, it can continue to grow at a good rate without running into high inflation,” Sullivan said.
The Fed’s preferred gauge of price pressures rose 0.3 percent in March from a year ago and has been under the Fed’s 2 percent target for 35 consecutive months. Sullivan’s boss, Chicago Fed President Charles Evans, has argued the Fed should stay on hold until 2016 to ensure it drives inflation higher.