Fed Rate hike likely soon

ATLANTA — Economic conditions in the United States have largely returned to normal and a Federal Reserve decision to raise interest rates should occur soon, Atlanta Fed President Dennis Lockhart said Monday.

“I think the point of ‘lift-off’ is close,” Mr. Lockhart said in a speech at the Atlanta Press Club. “The economy has made great gains and is approaching an acceptable normal … conditions are no longer extraordinary.”

He later told journalists he was “very disposed” to a rate increase at the Fed’s September policy meeting, but emphasized that the path of subsequent hikes should be gradual. He defined a gradual path as being more frequent than every other meeting.

His comments, on top of similar remarks by other Fed policymakers, signal the U.S. central bank’s growing recognition that its full employment target may be close at hand, while progress on lifting inflation to a steady 2 percent rate remains elusive.

Labor market strength appears to have set the stage for a rate hike next month, but it remains something of an act of faith that inflation will eventually recover as well.

In an interview with Bloomberg TV on Monday, Fed Vice Chairman Stanley Fischer said the U.S. economy had “nearly full employment but very low inflation.” Mr. Fischer added that rates would not stay this low “forever.”

Mr. Lockhart is regarded as a centrist and possible swing vote on the Fed policy committee. His consistent choice of words about the U.S. economy has served as a barometer of the central bank’s willingness to take that leap.

Mr. Lockhart said on Monday that the U.S. economy had cleared several major hurdles that worried him earlier in the year and was now strong enough to handle the end of more than six years of near-zero rates.

Risks from abroad, whether a Greek exit from the Euro Zone or a meltdown in China, have receded, he said, while job growth has left the U.S. economy “just a shade” from full employment and put the Fed in reach of one of its key goals.

While oil prices have made it difficult to gauge inflation, Mr. Lockhart said he is confident it will rise toward the central bank’s target in the coming months as the economy continues to strengthen.

“Compared to earlier in the year, we know a lot more and can shelve some concerns,” Mr. Lockhart said. “We are getting closer and closer to what feels like a healed state.”

Since May, Mr. Lockhart has pointed to a likely September rate hike, and his comments have firmed alongside continued strong job growth. Four of the current 10 voting members of the Fed policy committee have publicly put September in play — Mr. Lockhart, Fed Governor Jerome Powell, San Francisco Fed President John Williams, and Richmond Fed President Jeffrey Lacker.

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Pramod Baviskar

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