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Ex-Atlanta Fed president throws cold water on the notion that central bankers won't hike rates this year

Key Points
  • The Fed may hike rates one or two times as a buffer for the next economic downturn, former Atlanta Fed President Dennis Lockhart says.
  • Central bankers will likely be on hold until midyear before they'll have to re-evaluate inflation data, he says.
  • Lockhart's warning comes as the market has decided not to price in any Fed rate increases this year.
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The Fed will decide on rate hikes based on inflation data, says former Atlanta Fed president

The Federal Reserve may hike interest rates one or two times this year as a buffer for the next economic downturn, former Atlanta Fed President Dennis Lockhart contended Thursday.

Central bankers will likely be on hold until midyear before they'll have to re-evaluate inflation data, said Lockhart, who was president of the Atlanta Fed for 10 years from 2007 to 2017.

"I do believe a number of the members of the committee would still like to get one or two moves in closer to the midpoint of the neutral range and, without saying it, build more cushion for the next downturn," he added in a interview on CNBC's "Squawk Box. " 

The Fed opted not to raise rates from a range between 2.25 percent and 2.5 percent during its policy meeting this week, and it pledged that future moves would be done patiently.

In reaction, stocks surged Wednesday, with the Dow Jones Industrial Average closing above 25,000 for the first time since Dec. 4. The and Nasdaq posted their highest closes since Dec. 6. The market has decided not to price in any Fed rate increases this year.

After the fourth Fed rate hike of 2018 in December, Chairman Jerome Powell did leave the door open to other options in 2019, emphasizing "data dependency." However, at the time, the Fed projected two more rate increases this year.

On Jan. 4, Powell said in a speech that Fed policymakers "will be patient" on rates given continued muted inflation.

The discussion of "building ammunition" for the next downturn would not be something for the Fed to discuss publicly, Lockhart said. "You'll sound like you're raising rates in order to cut rates."

President Donald Trump has been a vocal critic of the Fed's policies under Powell, arguing the central bank's path on rates could hurt the economy.

For his part, Powell said Wednesday that the central bank did not take "political considerations" into account when deciding to take a much more cautious rate approach.

— CNBC's Jeff Cox contributed to this report.