MNI INTERVIEW: Ex-Fed Lockhart: Little Chance Of '20 Rate Move

--Fed Repo Interventions Not QE

--Unlikely To See Big Shift In Fed Framework Review

--Fed Rate Shift From 2018 To 2019 Was 'Stunning Pivot'

By Pedro Nicolaci da Costa

     WASHINGTON (MNI) - The Federal Reserve is likely to keep interest rates on

hold for this year and probably longer as U.S. economic growth holds steady and

the presidential election makes any policy moves politically touchy, a former

leading Fed official told MNI.

     "I don't see much chance of that," Dennis Lockhart, former president of the

Atlanta Fed, said in an interview. "I think policy is set for a while."

     According to Lockhart, only two developments, both highly unlikely in his

view, could cause the Fed to change course on interest rates: on the one hand,

it would take a "significant downturn in the economy" for the Fed to cut

further, while on the other, it would take a "surge of inflation into undesired

territory" to get the central bank back on a tightening path for monetary

policy.

     --GENERAL ELECTION

     The Fed would probably be shy about making drastic moves after what

Lockhart described as a "stunning pivot" that he said could be interpreted as a

policy error -- although he prefers to give Fed Chair Jay Powell and his

colleagues credit for their flexibility in the face of new economic evidence.

     The November presidential vote makes policy action this year even dicier,

Lockhart said.

     "If they get to the July meeting and there hasn't been a development,

they're not going to want to move in September and October in advance of the

election," Lockhart said. "That means the earliest 'live' meeting is December."

     --NOT QE

     Lockhart pushed back against the notion that the Fed's recent interventions

in the repo market, which include purchases of short-term Treasury bills, amount

to a shadow form of quantitative easing or QE.

     "The economy doesn't require additional stimulus right now, and it's hard

to argue that the market interventions we've seen recently are designed to

change the trajectory of the economy," Lockhart said.

     On Jan. 21, Larry Kudlow, President Donald Trump's senior economic advisor,

told a panel at the World Economic Forum in Davos he believed the Fed's bill

purchases were a form of stealth QE. 

     -FRAMEWORK REVIEW

     Asked about the Fed's ongoing review of its policy framework, whose results

are expected around mid-year, Lockhart said he wasn't holding his breath for

major changes.

     "There's a decent chance they don't do much," Lockhart said. The most we

might get is "some form of inflation averaging -- or just a well-thought-out

decision to not alter their basic approach" of targeting a 2% rate of inflation.

--MNI Washington Bureau; +1 202 371 2121; email: pedro.dacosta.ext@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MT$$$$,MX$$$$]