Fed Lockhart says 2015 rate hike is still ‘likely appropriate’

A decline may cast further doubt on Federal Reserve plans to raise interest rates this year and undermine the U.S. currency, which fell the most in four months this week, paring a 2015 advance. “It’s more a question of maybe the flight from emerging markets has been a little bit overdone and there’s a lot of investors that quickly need to get back in soon as things start looking better and that’s what we’re seeing here especially in dollar/Asia”, said Jesper Bargmann, head of trading for Nordea Bank in Singapore.

Before the December meeting the Fed will have data on the October and November employment numbers, inflation data for September and October and the first two estimates for overall economic growth in the third quarter, Lockhart said.

Currently, futures market odds put the first rate hike in March 2016. Fed Funds futures are now pricing in only a 5% chance of a rate hike in October and less than 40% this year, despite no change in rhetoric from the Fed itself. Lockhart, a voting member of the Federal Reserve’s policy committee said Friday, Oct. 9, 2015, that he believes the economy is on a satisfactory track and that an increase in interest rates is likely to be appropriate in either October or December.

Atlanta Fed President Dennis Lockhart suggested in a speech earlier Friday that a rate hike is likely this year although he also noted downside risks to the outlook.

The dollar slumped versus 15 of 16 major peers this week as members of the Fed’s policy-setting committee flagged concern that the currency’s strength could hurt the economy. Since that meeting, the US economy hasn’t performed well while inflation has remained low and the global economy is still weak.

Since then, economic data has shown the impact of a strong US dollar and a weaker Chinese economy on USA exports. It gained $1.72, or 3.4 percent, to $53.05 a barrel in London.

A few think the Fed could end up waiting until next year to begin raising rates. The Fed’s preferred price gauge rose 0.3 percent in the 12 months through August and has been under its target since April 2012. All of those could keep USA inflation, now at 1.3 percent, below the Fed’s 2 percent target.

The National Association of Federal Credit Unions (NAFCU) Chief Economist and Director of Research Curt Long commented on the recent FOMC minutes noting that “the minutes from the FOMC’s September meeting frames the decision to hold off on increasing rates as one driven by global weakness rather than on the subsequent reaction of financial markets”.

Consumer price inflation remained under the Fed’s 2 percent objective due to headwinds from failing energy prices and non-energy import prices.

With one dissent, the FOMC voted to leave the benchmark interest rate between zero percent and 0.25 percent, where it has been since December 2008 to support the economy through the worst recession since the 1930s and its recovery.