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 The forces that could weigh on the U.S. recovery include the recent
run-up in the value of the dollar and the potential that could choke
exports, Lockhart said, becoming the latest in a series of Fed
officials this week to cite concern about currency appreciation.
Even though economic growth appears to be holding up at around 3
percent on an annual basis, Lockhart said consumer spending remains
weak, wage growth is slow, and continued troubles in Europe have
added to concerns about the global economy.
Taken together, that could weigh on the Fed's progress in raising
inflation toward its two percent target and require more patience
from the central bank in deciding when to begin its first rate
tightening cycle in a decade.
Given recent data, "it is hard for me to conclude that we have made
progress on that objective," Lockhart said. "In its fundamentals,
inflation is reflecting what are still, in my view, lukewarm demand
conditions... At this point I'm concerned more about a persistent
undershoot," than inflation which gets out of hand, as some at the
Fed have warned.
He also stated what has become a sort of guiding principle at the
Fed under chair Janet Yellen - that it would be worse to raise
interest rates prematurely, and potentially damage the recovery,
than to wait too long and risk faster-than-desired inflation.
"It would be worse to reverse course because of having made a
premature decision than to be patient and run the risk that you are
a little late," said Lockhart. "When we begin to change policy we
want to have confidence in an outlook."
As a result, even as many analysts have pushed forward their
expectations of a Fed rate hike to earlier in 2015, Lockhart said he
expected "conditions for liftoff to ripen by the middle of 2015 or
later."
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Labor markets are steadily but only slowly tightening, he said, with
what he regards as full employment only coming in late 2016 or early
2017.
Lockhart's comments give an important insight to the views of Fed
centrists over when and how fast to raise interest rates that have
been near zero for six years. His remarks appear to buttress those
made by other Fed officials this week, such as Chicago Fed President
Charles Evans, who feel the Fed needs to be sure the economy can
handle any rate hike without slipping backwards. That line of
argument is thought to be favored by Fed chair Janet Yellen as well.
Lockhart does not currently have a vote on the Fed's policy-setting
committee. But he is among the four regional bank presidents who
rotate onto it next year - as is Evans.
(Reporting By Howard Schneider; Editing by Andrea Ricci)
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