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Two Fed officials point to the possibility of April rate hike

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Two Federal Reserve officials said interest-rate increases may be warranted as soon as the central bank’s meeting next month, citing solid readings on the U.S. economy despite headwinds from abroad.

“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,” Federal Reserve Bank of Atlanta President Dennis Lockhart said Monday in Savannah, Georgia.

The Federal Open Market Committee next meets April 26-27. It held off from raising borrowing costs last week and halved projections for how many times it would hike rates this year from four times in December, citing the potential impact from weaker global growth on the U.S. economy.

Lockhart is a policy-centrist and doesn’t vote on the FOMC this year. His moderately upbeat assessment of the U.S. economy was shared by San Francisco Fed chief John Williams.

“All else equal, assuming everything else is basically the same and the data flow continues the way I hope and expect, then April or June would definitely be potential times to have an increase in interest rates,” he told Market News International in an interview published earlier on Monday. Williams, a former head of research for Fed Chair Janet Yellen when she ran the San Francisco Fed, also doesn’t vote on policy in 2016.

Investor bets

Investors have reduced bets that the central bank will lift rates next month to 8 percent, compared to 27 percent a week ago, and see a roughly 43 percent probability of a hike in June, according to pricing in interest rate futures.

“Although I believe further normalization of interest rates will likely be justified by economic performance this year, and possibly relatively soon, I felt a patient approach made sense at this meeting,” said Lockhart, citing uncertainty caused by financial market turmoil and concerns over Chinese growth.

“I am reasonably confident the first quarter will represent something of a bounceback from the fourth quarter of last year,” he said. “Consumer activity has picked up sufficiently since the fourth quarter to support the view that overall domestic demand, the lead driver of the economy, is expanding at a healthy enough pace.”

See also:

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Higher interest rates: Don’t wish for too much, too fast