The Federal Open Market Committee will raise the fed funds rate target this year when “things settle down,” Federal Reserve Bank of Atlanta President Dennis Lockhart said Monday.
“In my vote at the recent FOMC meeting, I put most of the decision weight on prudent risk management around recent and current market volatility. As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment,” he said according to prepared text of a speech to the Buckhead Rotary Club. “I am confident the much-used phrase ‘later this year’ is still operative.”
Lockhart said increases will be gradual, which is “appropriate…for an economy operating in a weak global environment, an economy with some amount of slack remaining in labor markets, and an economy trying to shake off disinflationary influences and sustain enough momentum to achieve a healthy rate of inflation over the longer run.”
Regarding “uncertainties” caused by market volatility, Lockhart said, “It's too early to know whether this episode amounts to a bona fide shock to the economy or just a nervous spasm in the markets.”
While the labor markets have shown the “further improvement” the FOMC was looking for, he said, as a result of the recent volatility there is not “reasonable confidence” inflation will hit the 2% target set by the Fed.
“Even so, I have gotten comfortable enough on the inflation question to take a first step in one of the coming FOMC meetings in what will likely be an extended process of normalization of the interest-rate environment,” Lockhart said.
