Atlanta Fed's Lockhart says inflation risk still low, rate increase unlikely until mid-2016

Economic Indicators Associated Press

Atlanta Federal Reserve President Dennis Lockhart said Thursday he has more confidence in the economy than he did a year ago, suggesting he's not seeking an increase in interest rates until mid-2015 or later.

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Speaking to the Mississippi Council on Economic Education, Lockhart said he sees little danger of inflation and says the current unemployment rate is "still some distance" from full employment."

"In general, I'm more confident today than a year ago," Lockhart said.

He added, "No one has a perfect crystal ball, but I am rather confident that we'll get to economic conditions between mid- and late next year that would justify initiating a period of normalization of the interest rate environment."

Lockhart's occasional public speeches are sifted carefully by bankers and traders for hints on future Fed actions. He participates in the Federal Reserve's discussions on monetary policy such as setting interest rates or buying bonds, although he's not currently a voting member of the interest-rate setting Federal Open Market Committee.

The speech follows last week's meeting of the open market committee, where members said they would keep interest rates low for a "considerable period."

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Lockhart said significant slack remains in the labor market. If anything, he said, there's a greater risk today that inflation will "undershoot" the Federal Reserve's 2 percent target, although he expects price increase will "firm up" as the economy improves.

"Inflation is reflecting what are still, in my view, lukewarm demand conditions," he said.

Lockhart said he expects the U.S. will approach full employment by late 2016 or early 2017.

He emphasized that timing of higher interest rates is not "foreordained" and could change depending on economic performance.

Lockhart said he's increasingly confident that growth for the rest of 2014 will continue at 3 percent, and that data "has been encouraging in many respects," although consumer spending remains weak. He also said he's worried about a strengthening dollar driving down exports. Overall, he said he thinks the labor market is making "steady progress" but said "there is more work to do before we should be satisfied with employment conditions in the country."

He said high stock and bond prices do not pose a systemic risk of a crisis in the financial system such as the one that accompanied the beginning of the recession in 2007 and 2008.

"I take comfort in the much-strengthened defenses of the banking system, financial institutions in general and financial regulators," Lockhart said

Lockhart has been president of the Atlanta bank since 2007. It covers all of Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee.

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