Trusted performance.  Lasting value.

• Atlanta Fed leader says first-quarter growth is disappointing
• Lockhart says he’d be fine with some overshooting on inflation

By Steve Matthews

(Bloomberg) — Federal Reserve Bank of Atlanta President Dennis Lockhart said he will no longer push for a rate increase this month in light of weakening growth and still-low inflation.

“Based on what I have seen, I am not going to be advocating a move in April — I have changed my view,” Lockhart said Thursday in a Bloomberg Radio and Television interview with Kathleen Hays from Chicago. His remarks come three weeks after he attested the economy enough momentum to justify higher rates as early as this month. Consumer spending and business investment “seem to be softening, and yes that gives me pause,” Lockhart said Thursday.

Fed officials are discussing how quickly they should raise interest rates a second time following the first hike from near zero in December. Investors have lowered the odds of a move in April or June after Chair Janet Yellen said on March 29 that central bankers should “proceed cautiously” amid heightened global risks. The Federal Open Market Committee holds its next meeting on April 26-27.

“Consumer activity is slowing,” and “it does, to some extent, cast some doubt on the forecast I began the year with,” Lockhart said, adding that he predicts the U.S. economy will grow between 2 percent and 2.5 percent this year.

The Atlanta Fed estimates that the economy expanded at a 0.3 percent pace in the first quarter. Most private estimates are slightly higher.

Global Risks

The International Monetary Fund has cut its global economic outlook, as weak exports and slowing investment dim prospects in the U.S., a consumption-tax hike saps growth in Japan, and a slump in the price of everything from oil to wheat continues to hobble commodities producers. The fund predicts the world economy will grow 3.2 percent this year and 3.5 percent in 2017.

“Certainly, it is a concern,” Lockhart said of weaker global growth. “That would argue for caution, patience in what we are seeing in the data. I think the global context also influences our inflation objective.”

Consumer prices excluding food and fuel rose less than forecast in March, recording the smallest gain since August. Headline inflation slowed to 0.9 percent.

Lockhart said he was disappointed in Thursday’s consumer-price report.

“I would have preferred to see a little more firming,” he said.

2 Percent

Lockhart added he would be fine if prices rose more than 2 percent for a brief period of time: “We are not viewing 2 percent as a ceiling. Some tolerance of overshooting would be accepted.” At the same time, the Fed doesn’t need to see inflation at 2 percent before raising interest rates again, he said.

Lockhart supported the FOMC decision last month to hold off from raising interest rates. The median of policy makers’ quarterly projections currently implies two quarter-point increases this year, down from four forecast in December.

If growth bounces back quickly, Lockhart said he could still see multiple rate hikes as possible this year.

“If you look at the calendar, there are enough meetings remaining this year that if the data were to suggest it’s the appropriate policy to have three moves,” he said. “Two moves, three moves, both are possible at this stage. It’s going to depend on how the economy evolves.”

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.

By Steve Matthews

(Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank could be getting close to raising interest rates again, after it opted to take a pass on a rate hike last week.

“The relatively minor downgrades contained in the March SEP suggest that the next rate increase may not be far off provided that the economy evolves as expected,” Bullard said in a speech in New York on Thursday, referring to Fed officials’ quarterly forecasts, known as the Summary of Economic Projections.

Fed officials are discussing how quickly they should raise rates a second time following their move in December that delivered the first increase in nearly a decade.

Bullard, in a Bloomberg News interview Wednesday, said policy makers should consider an April hike in reaction to a tightening labor market and the prospect of inflation overshooting the Fed’s 2 percent target, while adding that officials may not have received enough additional data on the U.S. economy by then to persuade them to make a move.

Bullard in his speech said the outlook for U.S. and global growth was “downgraded somewhat” from December, while “the outlook for the U.S. labor market was upgraded somewhat” in the forecasts. Other variables were left about the same, he said. Bullard is a Fed policy voter this year.

Bullard supported the Federal Open Market Committee decision last week to hold off from raising interest rates, while FOMC participants scaled back projections for increases this year. The median of policy makers’ updated quarterly projections saw the rate at 0.875 percent at the end of 2016, implying two quarter-point increases this year, down from four moves forecast in December.

“Not following through on a proposed action can damage a policy maker’s credibility,” in the absence of a change in data or the outlook, Bullard said.

Atlanta Fed President Dennis Lockhart, San Francisco Fed leader John Williams and Philadelphia’s Patrick Harker have all this week called for continued tightening, raising April and June as possible dates for another step.