Fed's Lockhart: Brexit, uncertainty, require patience on rates

Thu Jul 14, 2016 1:18pm EDT
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By Howard Schneider

VICTOR, Idaho (Reuters) - The U.S. Federal Reserve should remain "cautious and patient" with any future interest rate increases as the fallout from the recent Brexit vote becomes clear, Atlanta Fed President Dennis Lockhart said on Thursday, adding weight to a core of U.S. central bankers who appear poised to remain on hold.

Nevertheless, he said it was still possible the Fed could raise rates as many as two times this year, depending on how the economy evolves.

"I still can imagine circumstances in which at least one policy move could take place and possibly two. Of course it will depend on the economy," he told reporters following an address at the Global Interdependence Center's Rocky Mountain Economic Summit.

In a speech, Lockhart said it was clear to him that the United Kingdom's decision to leave the European Union was not a "Lehman moment" of systemic importance to the global economy.

But he noted that a third of businesses his staff surveyed following the referendum said it "made their sales outlook more uncertain. They indicated they would be more cautious in hiring and capital spending decisions as a result of Brexit."

The immediate impact on the United States is likely small, he said, but "the consequences of Brexit may play out over a number of years, and the associated uncertainty could become an economic headwind."

"I don’t believe the (Federal Open Market Committee) is behind the curve in the setting of the policy rate. For that reason, I’m comfortable with a cautious and patient approach to policy in the near term," Lockhart said. "Sometimes you just have to take some time and let the waters clear."

Lockhart did not say how long it may take to get clarity, but his comments show the stark shift in expected policy that has taken place at the Fed since it raised rates in December for the first time in a decade. At the start of the year, Lockhart was among the many Fed officials who anticipated raising rates four times this year.   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