Fed's Lockhart sees strong U.S. growth, rate hike in mid-2015

Mon Jan 12, 2015 2:31pm EST
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By Howard Schneider

ATLANTA (Reuters) - The U.S. economy is motoring ahead in its recovery, likely putting the Federal Reserve in position to raise interest rates by the middle of the year, Atlanta Fed President Dennis Lockhart said on Monday.

In some of his strongest comments to date about the direction of the economy, Lockhart said the U.S. economy "is hitting on all cylinders."

In remarks to the Rotary Club of Atlanta, Lockhart said his expectation is that reasonably strong growth will continue through 2015, unemployment will fall, and inflation will eventually begin to rise - a set of conditions that should allow the central bank to raise rates by the middle of the year.

But even if inflation remains stuck below the Fed's 2 percent target, Lockhart said the time may be approaching to raise rates, as long as the pace of price increases does not begin a steady downward slide. Likewise with the economy's current disappointing wage growth, he said.

Given the conflicting signals and "noise" in the data, Lockhart said the absence of bad news may clear the way for the Fed to hike.

The Fed's decision "will either be informed by some positive indicators or the absence of negative indicators," Lockhart said. "It will be the absence of losing ground, as might be suggested by a run of core inflation numbers that are declining."

The comments from a Fed centrist give an important insight into how the central bank is steadily moving toward its first post-crisis rate hike.

The initial increase will still leave interest rates low, and they are expected to be increased only slowly toward what is considered a neutral level. That means years more of economic stimulus are ahead.   Continued...

Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, arrives at the opening reception of the Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming August 21, 2014. REUTERS/David Stubbs