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Fed's Lockhart sees advantages in waiting for stronger data ahead of rate increase

Atlanta Federal Reserve President Dennis Lockhart sounded a dovish tone in a speech Thursday, saying "heightened uncertainty" about economic growth made waiting to hike interest rates more feasible.

A "murky economic picture" has created uncertainty about the future track, he said, a day after the Fed released a Beige Book that also contained cautious statements about current conditions. Lockhart's own Fed branch, through its GDPNow tracker, is putting first quarter gross domestic product gains at just 0.1 percent.

The Fed has kept its key rate near zero since late 2008 in an effort to spur growth that has yet to exceed 2.5 percent on an annual basis.

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Lockhart said first-quarter data was "notably weak" while the 126,000 jobs created in March brought the employment picture back "down to earth."

"Some factors at work in recent months were clearly transitory in nature, and some other factors have triggered rapid adjustment in certain sectors of the economy," Lockhart said, according to a transcript of his speech to the Palm County Business Leaders in Florida. "Together, they are giving rise to heightened uncertainty about the track the economy is on."

Despite the fairly gloomy assessments of the immediate economic picture, he expects full-year growth will be in the 2.5 percent to 3 percent range.

Federal Reserve Bank of Atlanta President Dennis Lockhart
Scott Eells | Bloomberg | Getty Images
Federal Reserve Bank of Atlanta President Dennis Lockhart

However, that doesn't mean he's ready to pull the trigger on tightening.

"I think it is highly desirable that the public sees an economic picture at the time of the liftoff decision that is consistent with the decision criteria the FOMC has set out," he said. "Ideally, coherence between data and decision would be clear to all."

In a separate speech, Cleveland Fed governor Loretta J. Mester sounded a bit more confident about the economy, contending that the harsh winter exacted a toll on growth and the trend would be reversed in coming months. Mester said she would be comfortable with liftoff from current policy so long as the economy regains its footing as she expects.

"On balance, I expect that after a weak first quarter, U.S. economic growth will strengthen, averaging about 3 percent over the remainder of this year and next. This is somewhat above my estimate of 2.5 percent longer-run growth," Mester said during a speech in New York, according to prepared remarks. "The above-trend growth I am projecting will support continued improvement in labor markets, one of the factors that will figure into the (Federal Open Market Committee's) assessment of the appropriate timing of liftoff."

In yet another round of Fedspeak Thursday, Boston Fed President Eric Rosengren flatly stated that the Fed's criteria for tightening—full employment and an inflation rate around 2 percent—have not been met.

"Although there has been noticeable improvement in the labor market over the past few years, since March the indicators have been a bit mixed. Furthermore, inflation remains stubbornly below our target of 2 percent," Rosengren said, according to prepared remarks.

He added that "incoming data would need to improve to fully satisfy the Committee's two conditions for starting to raise rates."