Fed's Lockhart: Economy Could Justify Rate Increase as Soon as April Meeting

Steady U.S. economic growth could justify increasing short-term interest rates as soon as next month, Federal Reserve Bank of Atlanta President Dennis Lockhart said Monday.

"In my opinion, there is sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April," Mr. Lockhart said.

The official, who doesn't hold a voting role on the interest-rate-setting Federal Open Market Committee this year, said that "policy remains on a gradual path of rate increases."

Mr. Lockhart is seen as a reliable centrist among central bank officials. His comments came from the text of a speech in Savannah, Ga. on the economic outlook and monetary policy.

The official said he supported the Fed's decision last week to leave short-term interest rates unchanged given recent financial market volatility and signs of global weakness. The environment for policy setting has changed enough since mid-December to justify exercising some patience regarding the next rate increase, he said, adding the central bank will closely monitor global and financial developments.

Federal Reserve officials last week said they expect to raise their benchmark rate just twice this year, after an initial increase in December, down from the four they previously predicted. That moved the Fed more into line with the thinking of investors, many of whom doubted the central bank would be able to move as fast as it had forecast.

The Atlanta Fed president offered an explanation for the "changed sentiment regarding the speed of" rate increases in his remarks Monday.

"I would argue that the real economy--the Main Street economy--remains substantially on the path envisioned by Committee participants at the time of the liftoff decision in December. However, the context of risks and uncertainties has shifted somewhat," he said.

The diminished rate outlook largely reflects lingering risks posed by soft global growth and financial-market volatility. While inflation is showing signs of stirring, some in the Fed worry that raising rates too soon may choke off the recovery. Mr. Lockhart said Monday that some inflation indicators show movement higher in the direction of a healthier rate of inflation.

Speaking in Paris earlier Monday, Richmond Fed President Jeffrey Lacker said he is confident weak inflation will begin to tick "significantly" higher soon. Mr. Lacker also doesn't currently hold a vote on the central bank's policy committee.

By Harriet Torry