Atlanta Fed chief favours rates at 2% for now
(NEW YORK) Federal Reserve Bank of Atlanta president Dennis Lockhart said he prefers to keep interest rates unchanged for now, while anticipating a debate among policy-makers about whether to raise them in coming months.
‘From my perspective, I like policy where it is,’ Mr Lockhart, 61, said in an interview with Bloomberg News on Friday in Atlanta. ‘I view the current situation as reasonably balanced, with a great deal of uncertainty around both the downsides to growth and the upsides to inflation.’
The economy’s expansion is likely to remain ‘weak’ through the second half of this year, which should help to damp inflation, said the Atlanta Fed chief, who will vote on rates next year. That means ‘the reasonable policy debate will be around holding versus raising rates’, he said.
‘If the inflation numbers remain high - which is another way of saying if I’m wrong - then I may support action earlier,’ Mr Lockhart said. He said he is ‘quite comfortable with the current posture’ as long as price gains moderate.
Mr Lockhart’s remarks followed a government report on Aug 14 that showed consumer prices jumped by the most since 1991 in the year to July, spurred by energy costs.
He said ‘all’ Fed officials are concerned about the ‘creeping’ up in prices, while the slide in oil in the past month will help ease the pressure.
‘Certainly, it helps a great deal,’ he said. ‘The outlook for the second half of the year and going into 2009 is we’ll see some alleviation of inflation pressures. Having oil and other commodities come down so strongly helps.’
The Fed kept its benchmark interest rate at 2 per cent for the second straight meeting on Aug 5. It paused after the most aggressive series of rate reductions in two decades this year. The odds of no change in rates through the end of the year are 77 per cent, up from 49 per cent a month ago, futures contracts show.
The Federal Open Market Committee, which is made up of the Washington-based Fed board members and five district bank presidents, next gathers on Sept 16. Four of the bank chiefs rotate onto the panel, with the New York Fed president holding a permanent slot.
Mr Lockhart also said the housing slump is likely to last at least several more months, with prices and sales continuing to fall.
With export growth helping, the US economy seems likely to avoid an outright contraction this year, Mr Lockhart added. — Bloomberg
Source : Business Times - 18 Aug 2008
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