Lockhart still sees 2015 rate hike despite recent red flags

Policymakers at the September 16-17 meeting of the Federal Open Market Committee (FOMC), mulling an increase in the zero-level federal funds rate, took a cautious approach after a severe bout of financial turmoil unsettled the outlook for the USA economy. Lackluster jobs data last month raised worries about economic growth, eventually cooling expectations of a rate hike this year. “Once we get guidance from Corporate America, investors will be reasonably more confidence about getting back into the market”, said Bob Doll, chief equity strategist at Nuveen Asset Management. He said that interest rate changes by the Fed, alone, wouldn’t accelerate growth.

In his speech Friday, Evans suggested that the risks of waiting longer to raise rates were manageable. The Fed’s next meeting begins October 27.

Dudley’s comments appear to signal a route shift: on September 28, he predicted the Fed would “probably” raise rates this year.

“Based on my forecast, yes I am [expecting a rate hike]”, he said.

The Fed’s decision in the policy meeting came in before September’s weak jobs report was released.

“I think we’re talking about an economy that is growing a bit above trend, the labor market is gradually tightening”, he said. The trouble, he said, is that this strength is being offset somewhat by global weakness, including a slowdown in China, and a stronger US dollar, which is hurting USA exports.

To add to the bank’s concerns, the clouds of disappointing economic data are gathering around Germany. He noted that these reports followed a turbulent August in which concerns about China’s slowdown sent stock prices plunging.

“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.

“As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment”. “Cumulative progress is consistent with liftoff soon”, he says.

The Fed opted to keep its benchmark interest rate at zero after its regular policy meeting in September.

The Fed’s action was approved on a 9-1 vote with Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissenting.

Speculation the US Federal Reserve will hold off on an interest rate rise until next year put further downward pressure on the dollar however, while oil prices edged up again. But he cautioned, “That view is not immutable and will respond to economic developments over time”.

Hedge funds and other money managers cut net bullish bets on the dollar to the lowest in more than a year, according to data from the Commodity Futures Trading Commission. Fed Chair Janet Yellen is considered a “dove” on the other side of the rate hike spectrum.