By Kristen Vake
The assumption that the Federal Reserve will raise interest rates by year-end is “still operative,” according to Atlanta Federal Reserve President Dennis Lockhart, but he added that weaker U.S. economic data over the past few weeks has made the situation “a bit more ambiguous.”
At the September 16-17 meeting of the Federal Open Market Committee, policy-makers chose to hold off on a long-anticipated increase in interest rates.
Since then, economic data has shown the impact of a strong U.S. dollar and a weaker Chinese economy on U.S. exports. Job growth in September’s employment report was weaker than economists had expected.
“Going into the last meeting for me was a different picture than what we’ve seen in the last four to five weeks,” Lockhart said at the fall conference of the Society of American Business Editors and Writers at the CUNY Graduate School of Journalism.
In an interview prior to his remarks, Lockhart said he does not believe it is the appropriate time for an increase in interest rates.
“Consumer spending data is pretty good and if you talk to someone from the automobile business, it’s very good. But there are other pieces of data coming in that cast more doubt on what’s happening in the economy,” Lockhart said.
Lockhart stressed the importance of tracking consumer spending and said that information plays a key role in his policy decisions at the Fed.
“As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment. I am confident the much-used phrase ‘later this year’ is still operative,” Lockhart said.
Minutes of the September FOMC meeting, released Thursday, showed that Fed officials were concerned about the impact of weakening global growth on inflation, which has remained below the Fed’s growth target of 2 percent for the past three years.
Since the economy bottomed in the second quarter of 2009, real economic output is up about 14 percent, Lockhart said. He said the employment situation is nearing lows that many economists associate with full employment.
U.S. growth was a strong 3.9 percent in the second quarter of 2015, but a recent drop in exports and rise in inventories has lowered economists’ forecasts for third quarter GDP to 1 percent, according to GDPNow.
“I believe the economy remains on a satisfactory track and, speaking for myself, I see a liftoff decision later this year at the October or December FOMC meetings as likely appropriate,” he said. “I’m trying to keep the end game in focus. For me the end game is to begin and sustain an orderly process of normalization.”
The next FOMC meeting is set for October 27-28.