Fed’s Lockhart Urges Serious Discussion of Rate Hike This Month

  • Atlanta Fed president says growth is picking up in 3rd quarter
  • Fed’s Kashkari says he sees no urgency amid sluggish inflation

Can Hawkish Talk From 'Dove' Brainard Move Markets?

Federal Reserve Bank of Atlanta President Dennis Lockhart repeated his call for a “serious discussion” about raising interest rates at the U.S. central bank’s meeting later this month, even after some recent disappointing economic indicators.

“Notwithstanding a few recent weak monthly reports -- from the Institute for Supply Management, for example -- I am satisfied at this point that conditions warrant that serious discussion,” Lockhart said Monday in Atlanta.

The policy-setting Federal Open Market Committee meets Sept. 20-21. Recent comments from committee members point to a division over the need to raise interest rates. Fed Governor Daniel Tarullo on Friday repeated a cautious assessment of the economy, while Boston Fed President Eric Rosengren argued there was a reasonable case for gradual tightening.

Investors will also listen closely to remarks at 1:15 p.m. New York time from Governor Lael Brainard, who has argued for patience in raising rates, for final clues before the central bank enters its traditional self-imposed quiet period before a meeting.

Minneapolis Fed chief Neel Kashkari, in an interview on CNBC Monday, said he saw no urgency to act and preferred to see more upward movement in core inflation.

The benchmark federal funds rate has been held in a target range of 0.25 percent to 0.5 percent since a hike in December that was the first increase in nearly a decade. As they approach their next meeting, Fed officials are grappling with a mix of conflicting data. Despite signs of continued weakness related overall economic growth, the U.S. labor market has continued to add jobs at a healthy clip.

“After relatively weak growth over the first half of the year, I expect a stronger second half,” Lockhart said to the National Association for Business Economics, citing the bank’s estimate. Third-quarter growth was tracking at 3.3 percent on Friday, according to the Atlanta Fed’s tracking estimate.

The economy is “making progress” toward full employment, Lockhart said, though progress in moving inflation toward the 2 percent goal may have stalled.

“The inflation data overall have not been suggesting disinflation or deflation, but the flat trend line is enough below target that, in my opinion, the shortfall cannot be considered immaterial,” he said. “I find this to be an awkward state of affairs.”

Lockhart said his “base case” is for inflation to rise, and there is reason to be confident in the outlook, though he can’t dismiss an alternative scenario in which the economy is stuck in secular stagnation.