Federal Reserve Bank of Atlanta President Dennis Lockhart said the U.S. economy is strong enough to weather another rate increase as early as next month.
“There is sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April,” he said in the text of a speech in Savannah, Georgia, on Monday. Policy makers “will reevaluate whether the real economy — the Main Street economy — remains on the assumed path to full employment and price stability” and “take account of the context of risks and uncertainties surrounding the outlook,” he said.
The Federal Open Market Committee next meets April 26-27. It held off from raising borrowing costs last week and scaled back forecasts for how high interest rates will rise this year, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy. Lockhart said he supported the decision.
“Although I believe further normalization of interest rates will likely be justified by economic performance this year, and possibly relatively soon, I felt a patient approach made sense at this meeting,” he said. While the economy “remains substantially on the path envisioned” in December, when officials raised interest rates for the first time in almost a decade, “the context of risks and uncertainties has shifted somewhat,” he said.
Among recent global developments that have fueled uncertainty, Lockhart cited volatility in global financial markets at the start of the year, an economic slowdown in China, the Bank of Japan’s adoption of negative interest rates and “strong measures” by the European Central Bank to spur inflation.
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Despite those headwinds, Lockhart predicts the U.S. economy will grow between 2 percent and 2.5 percent this year. While it is yet too early to tell whether the slowdown in the fourth quarter was “a one-off aberration or a sign of slowing growth,” a tracking estimate for the first quarter currently points to an economic expansion of 1.9 percent, he said.
“I am reasonably confident the first quarter will represent something of a bounceback from the fourth quarter of last year,” he said. “Consumer activity has picked up sufficiently since the fourth quarter to support the view that overall domestic demand, the lead driver of the economy, is expanding at a healthy enough pace.”
With economic growth continuing, employment conditions should also improve, he said. Even though slack remains in the labor market, the Fed is getting closer to the objective of full employment, Lockhart said, adding that he’s also “optimistic” on achieving the 2 percent inflation goal in the medium term.
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