-
Policy
Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM POLICY: -
EM Policy
EM Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM EM POLICY: -
G10 Markets
G10 Markets
Real-time insight on key fixed income and fx markets.
Launch MNI PodcastsFixed IncomeFI Markets AnalysisCentral Bank PreviewsFI PiFixed Income Technical AnalysisUS$ Credit Supply PipelineGilt Week AheadGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance CalendarsEZ/UK Bond Auction CalendarEZ/UK T-bill Auction CalendarUS Treasury Auction CalendarPolitical RiskMNI Political Risk AnalysisMNI Political Risk - US Daily BriefMNI Political Risk - The week AheadElection Previews -
Emerging Markets
Emerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
-
Commodities
-
Credit
Credit
Real time insight of credit markets
-
Data
-
Global Macro
Global Macro
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
Global MacroDM Central Bank PreviewsDM Central Bank ReviewsEM Central Bank PreviewsEM Central Bank ReviewsBalance Sheet AnalysisData AnalysisEurozone DataUK DataUS DataAPAC DataInflation InsightEmployment InsightGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance Calendars EZ/UK Bond Auction Calendar EZ/UK T-bill Auction Calendar US Treasury Auction Calendar Chart Packs -
About Us
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.
Free AccessREPEAT:MNI INTERVIEW:Ex-Fed's Lockhart: Bet on a March Hike
Repeats Story Initially Transmitted at 14:25 GMT Jan 26/09:25 EST Jan 26
--Solid Economic Growth Warrants 3 Hikes This Year
--Material Deterioration in Infl Data, Significant Volatility Could Derail FOMC
--Flattening of Yield Curve Could Pitch Curveball in Fed Plan
By Jean Yung
WASHINGTON (MNI) - Solid growth in the U.S. economy and a healthy labor
market will likely warrant three interest rate increases this year, with the
first likely to come in March, former Fed official Dennis Lockhart told MNI in
an exclusive interview this week.
Lockhart, long a reliable guide to Fed centrist thinking during his decade
at the helm of the Atlanta Fed, said his presumption is that the Federal Open
Market Committee gathering March 20-21 is "live" for a possible rate hike,
barring some material setback in the inflation data.
"I think a move is likely. It would take some economic course change to
presume otherwise," he said. "We would have to see a deterioration in the
inflation numbers," particularly in core inflation, and "that would have to
happen in a relatively short period of time."
The quarterly FOMC meetings that include a press conference are typically
better candidates for taking policy actions, which means the Fed could move
again in June, September, or December. With three hikes penciled in for the
year, Lockhart speculates the committee may choose to pause mid-year or at
year-end.
One scenario would involve hikes in March, June and September with a stop
to "reappraise" in the fourth quarter, Lockhart said. Another is a breather in
the middle of the year, which "could revolve around the behavior of the
inflation numbers, for example, or any sense of change going on in trajectory of
the economy."
--POSSIBLE CURVEBALLS
The flattening of the yield curve could put a wrinkle in the Fed's plan. If
long-dated yields don't move higher with short-term rates, the FOMC "may feel it
needs to pause to reassess what's going on in the longer-dated markets and not
get itself in a position of contributing to a flatter yield curve by pushing up
the short end," Lockhart said.
Finally, the committee has historically tended to "shy away from moving
right into the face of a headwind that has developed," such as a major political
event or choppy waters in global markets.
"The committee can stay true to the idea of the gradual rise in the policy
rate but skip a meeting to let things calm down," Lockhart said.
--INFLATION GOAL
Some on the FOMC have argued the Fed should wait for evidence of a firming
of price pressures before next raising rates -- partly also to affirm its
commitment to the 2% inflation target and bolster longer run inflation
expectations. Charles Evans and Neel Kashkari, presidents respectively of the
Chicago Fed and Minneapolis Fed, dissented from the majority decision to raise
rates in December for those very reasons.
But Lockhart views those arguments as "legitimate" though they represent a
"minority view" on the FOMC. Policymakers project core inflation to hit between
1.7% to 2.0% by year-end, with the median forecast at 1.9%. Some on the FOMC
would view that as "very close to" the 2% target, Lockhart said.
"All things being equal, there's a desire to get off the zero lower bound
as expeditiously as the economy allows," he said. A benefit of doing that is
building itself a cushion and having in the Fed's arsenal "a more powerful tool
to react to a downturn."
--SLIDING NEUTRAL RATE
With projections of the so-called neutral rate falling steadily over the
years from over 4% in 2012 to 2.75% today, the point at which the Fed will
choses to stand pat could come as soon as a year and a half from now, Lockhart
said.
"I do think the neutral rate estimate is a very significant part of the
picture today," he said. How views of the neutral rate adjust remains to be seen
as the economy continues to chug along faster than its longer run rate, but it
could happen that a pause will come sooner rather than later, "when the
committee says in effect we've done enough of raising, it's time to quit any
tightening and pause until we see new conditions develop."
Lockhart, who retired last year as Atlanta Fed president, was one of few
Fed officials boasting extensive business sector experience in the U.S. and
abroad during the financial crisis. Prior to joining the Fed, he had been
president of the investment firm Heller Financial and held leadership positions
at Citigroup and private equity firms.
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.