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Fed may hike rates even in absence of inflation pickup: Lockhart

Tuesday, January 13, 2015 - 07:16
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Atlanta Federal Reserve Bank President Dennis Lockhart said on Monday the central bank may begin raising interest rates even if inflation is not clearly rising to its 2 per cent target.

[ATLANTA] Atlanta Federal Reserve Bank President Dennis Lockhart said on Monday the central bank may begin raising interest rates even if inflation is not clearly rising to its 2 per cent target.

The drop in energy prices has made inflation difficult to predict, he told reporters after a speech in Atlanta, and that he would be confident in the US economy's progress as long as inflation readings don't slide downward. "We are going to conceivably have to make a judgment that the outlook, even in the absence of real-time inflation readings that are rising, that inflation is nonetheless converging to target," Lockhart said.

Though he said he expects wages to also begin rising this year, Lockhart said the Fed may have to take heart in the absence of bad news in deciding on the timing of an initial rate hike, rather than on a convincing run of good news. "Wages are a swing factor going forward," Lockhart said, both for the evidence they give about health in the labor market and because rising wages influence future inflation.

The Fed "will either be informed by some positive indicators or the absence of negative indicators," Lockhart said. "But I would really expect that over the next half year to three quarters of a year we would expect to see some pickup in wage data. There is a lot of noise in the wage data. It is going to take a few more months." Despite steady job growth, wages have remained tepid.

REUTERS