MNI INTERVIEW: Ex-Fed Lockhart: Rates Likely On Hold 1st Half

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve is likely to prepare the ground for

keeping interest rates on hold for the first half of the year but refrain from

announcing major changes to its balance sheet program Wednesday, former Atlanta

Fed President Dennis Lockhart told MNI. 

     The latter could disappoint investors clamoring for the Fed to retain a

larger share of its crisis-era asset purchases.

     Inserting the word "patient" in the policy statement or adjusting other

language to similar effect would encourage expectations for rates to stay in

their current 2.25% to 2.5% range through the first half of the year, Lockhart

said. 

     Meanwhile, policymakers will be keeping an eye on how inflation evolves.

     Lockhart also expects the committee to defer announcing changes to its

balance sheet program until a later meeting, though officials appear to have

reached a consensus on keeping an operating framework with abundant reserves. 

     "It now seems certain the FOMC will opt for a larger balance sheet than

earlier discussed," he said. "It has taken the committee a while to get there,

and I suspect they simply need more time to conclude internal deliberations." 

     There likely remain outstanding issues, after months of discussion,

requiring staff and New York Fed markets desk analysis, he said. "I would guess

there are some final considerations before they're ready to publicize a plan."

     Participants may be skeptical of those blaming recent market volatility on

the Fed's shrinking balance sheet, Lockhart added.

     Most FOMC members forecast in December raising rates one to three times

this year if data on growth, jobs and inflation come in as expected. However,

amid worries over a global slowdown and falling confidence, markets are not

pricing in any rate increase for the year. 

     Officials have also noted that core inflation, at just below 2%, remains

muted, affording them time to watch and wait to see how these risks play out. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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