Fed's Dennis Lockhart: 'Serious discussion' of interest-rate hike needed

Atlanta Federal Reserve chief Dennis Lockhart on Monday signaled a willingness to consider an interest-rate hike this year, as investors also anxiously anticipate another Fed official's remarks amid heightened sensitivity over any substantive comments on rate policy.

Lockhart's assessment of current economic conditions, while notably positive, fell short of a full-throated argument for an immediate rate increase — which appeared to ease investors' fears of a September spike.

Those fears had been building as traders anticipate Fed board governor Lael Brainard's talk Monday afternoon at the Chicago Council on Global Affairs.

Speculation centered on the possibility that Brainard, generally viewed as hesitant to implement quick increases, would signal her own willingness to take the plunge for higher rates.

"Brainard is both young and extremely dovish relative to the baseline for the whole committee, and it’s safe to say she’s the leader of the dovish wing" of the Fed's rate committee, Bespoke Investment Group analysts said Monday in a research note. "She’s either going to tacitly concede the need for a hike at the September meeting or go in a guns-blazing defense of no change in policy."

In any event, Lockhart's call for a "serious discussion" of a rate increase added additional credence to arguments that the Fed will raise rates this year.

September, October and December meetings represent opportunities for rate increases.

Lockhart told a business group in Atlanta: "I believe the economy is sustaining sufficient momentum to substantially achieve the (Fed's) monetary policy objectives in an acceptable medium-term time horizon."

He said he expects a "stronger second half" for gross domestic product and noted "progress toward our full employment mandate" following strong job gains in recent months. But he also bemoaned sluggish inflation, which is hovering around 1.6%, describing the mixed economic data as "an awkward state of affairs."

Stocks were higher in late morning trading after earlier posting losses. The Dow was up about 0.2% and the Standard & Poor's 500 index gained 0.4%.

Follow Paste BN reporter Nathan Bomey on Twitter @NathanBomey.