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Fed official: rate hike may be needed

Steve Matthews

Federal Reserve Bank of Atlanta President Dennis Lockhart said he’s confident that U.S. economic growth is accelerating, setting the stage for at least one increase in interest rates this year.

“I’m not locked in to any policy position at this stage, but if my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year,” Lockhart said in the text of remarks on Tuesday to the Rotary Club of Knoxville, Tennessee.

Fed officials are weighing whether to increase interest rates next month for the first time since ending the era of near-zero borrowing costs in December, with conflicting signals given by a strengthening job market and by weak economic growth the past three quarters. New York Fed President William Dudley said earlier on Tuesday that “we’re edging closer” to another rate hike and that a move at policy makers’ September meeting is possible.

While growth in the first half was weak, Lockhart said, “I, as one Fed policy maker, am not prepared to rule out at least one rate hike before year’s end.”

The odds of an interest-rate increase at the Sept. 20-21 meeting of the Federal Open Market Committee are about 22 percent, according to pricing in federal funds futures, with the probability of a hike by December at 50 percent.

Lockhart described the labor market as nearing full employment, with wages showing signs of a pickup.

“Recent price data hint at the firming of underlying price pressures,” he said. “I’m reasonably comfortable with a forecast of reaching 2 percent by year-end 2017.”

Lockhart said he was focused on monitoring business investment, which he said could have been hurt by uncertainty over U.S. policies. “It’s possible the election is a factor,” he said.

The median estimate of Fed officials in June was for two quarter-point increases this year, though six policy makers projected only one increase.

A former banker and Georgetown University faculty member, Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida and Georgia, and portions of Louisiana, Mississippi, and Tennessee.