Consumer spending needs to surge for an expected bounce back in U.S. economic growth, Atlanta Federal Reserve bank president Dennis Lockhart said on Wednesday, laying out his expectations for the economy as the Fed approaches its first rate hike in nine years.
Lockhart said the Fed is now on a "foreshortened" time frame in terms of analyzing data, with the flow of information reduced to "days, weeks and near-term months" before an expected policy change.
He said he expects depressed oil industry investment and the drag on exports from a buoyant dollar to continue to slow U.S. performance. But those effects should ease over time, and Lockhart said that in the interim household spending needs to increase if the recovery is to remain on track.
A year of strong job growth, higher wages, better credit access and other factors should set the stage for that to happen. But the first quarter was a weak one for consumer spending as well.
"The near-term growth picture has yet to come into focus," Lockhart said at a Rotary Club lunch, with Friday's employment report for April an important piece of evidence about whether a rebound is beginning.
"The fundamentals supporting consumption growth seem strong," Lockhart said, but "consumers seem to be behaving cautiously...Consumers don't yet seem confident enough to increase discretionary spending."
Lockhart, a centrist who currently votes on the Fed's policy-setting open market committee, has all but ruled out a June rate hike, helping set the current expectation of a likely September increase.
He said nothing to indicate that view has changed substantially, particularly given the weak start to the year, something he attributed to developments like the rise in the dollar whose impacts should ease.
But he also said that the Fed's time frame for data analysis had taken on a new urgency because the central bank "will likely soon be considering a major policy change."
"The incoming data over the coming days, weeks and near-term months must be intensely watched and carefully interpreted," he said. "For policymaking purposes the relevant time frame has been foreshortened."