Fed's Lockhart calls June rate increase a real possibility

[ATLANTA] Federal Reserve Bank of Atlanta President Dennis Lockhart said US financial markets may be underestimating the odds of a central bank rate increase in June.

"I would put more probability on it being a real option," Mr Lockhart told reporters at the Atlanta Fed's financial markets conference at Amelia Island, Florida, when asked about federal funds futures markets indicating odds of a hike at about 10 per cent.

"The communication of committee participants and members between now and mid-June obviously should try to prepare the markets for at least a realistic range of possibilities" for the next policy meeting.

Mr Lockhart said he supported the Federal Open Market Committee's decision not to specify to what degree global developments pose risks, compared with a statement prior to its hike at the December meeting that risks to the outlook were "nearly balanced." Investors halved the odds of a June rate increase last week as the central bank signaled little explicit urgency to tighten.

"It is desirable that financial markets and policy makers be reasonably well aligned," said Mr Lockhart, a non-voting member of the FOMC this year. "I don't think it is at all constructive to have a lot of volatility because of surprising the markets."

Mr Lockhart said he wasn't leaning for or against a June increase until he sees more data, adding that two interest-rate increases this year are "certainly possible."

In quarterly forecasts submitted in March, the median projection from FOMC members was for two quarter-point interest-rate increases in 2016, down from the four projected by the median forecast in December. In contrast, prices for federal funds futures contracts imply just one move this year.

"I am sticking with the basic forecast that the remaining three quarters of the year actually will show a rebound from the apparent weakness of the first quarter," Mr Lockhart said, adding he has been generally encouraged by signs that inflation is firming.

The UK's June referendum on whether to stay in the European Union will be a consideration for Fed policy makers but doesn't rule out the possibility of a hike, Mr Lockhart said.

A former Georgetown University professor, Mr Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi and Tennessee.

BLOOMBERG