Federal Reserve officials who have spoken following last
week’s high-profile policy meeting say a rate increase this year remains in the
cards. In fact, central bankers say they weren’t far from taking that first
step to start raising short-term interest rates. The decision not to raise
rates was a “close call,” Federal Reserve Bank of Atlanta President Dennis
Lockhart said Monday in Atlanta. Given all the tumult tied to China and
other foreign economies and the resulting market churn, he said “I thought it
prudent to wait” longer to raise rates.
Other Fed officials also indicated in recent days the
decision was close. The camp advocating caution won over the Federal Open
Market Committee, which voted 9-1 on Thursday to keep its benchmark rate
near zero—where it has been since December 2008—to get a better read on how
global economic turbulence and unsettled markets are affecting the outlook.
While officials agree rates should rise this year, comments
since the meeting show a split on when exactly that should happen. Mr.
Lockhart, who holds a voting role on the FOMC and often is looked to as a
bellwether for the consensus view of policy makers, thinks the Fed will raise
rates this year, citing an economy that is “performing solidly” amid good job
gains. But he also said that while the Fed can act at any of its two remaining
meetings this year, there is a tight window to gain the needed confidence to
boost rates at the late October session.
Speaking in New York on Saturday, San Francisco Fed leader John
Williams, another FOMC voter, agreed that a rate rise later this year
remains “appropriate.” He said it was a good idea to hold off on boosting
borrowing costs for a little while longer, but added the Fed shouldn’t wait
indefinitely because that might force it to act more aggressively than he would
The decision not to act was countered by two other policy
makers who believe the economy has improved enough for the central bank to
begin moving toward a more historically normal policy stance now. Mr. Lacker
said there would be no real cost with raising rates in this economy, and he
dismissed fears that inflation is too low despite the fact the Fed has missed
hitting its 2% target for three years and doesn’t expect to get there until
Speaking in Nashville on Saturday, St. Louis Fed leader James
Bullard said that if he had a vote on the FOMC now, Mr. Lacker’s
opposition would have been less lonely. “The case for policy normalization is
quite strong” because the Fed has gotten what it set out to achieve with its
hiring and inflation goals, he said. Mr. Bullard said the Fed meeting last week
was “pressure packed.” He said those who don’t want to raise rates are failing
to answer that question.
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