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Fed's Lockhart says FOMC should be patient after weakening jobs

[ATLANTA] Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank should wait until at least next month to consider raising interest rates because of a slowing labour market and the British vote on European Union membership, adding his voice to the argument for a delay ahead of a speech by Chair Janet Yellen.

"I don't personally see a lot of cost to being patient to the July meeting at least," Mr Lockhart said Monday in a Bloomberg Television interview with Michael McKee in New York.

"I think we can be watchful and see how things develop over the next few weeks."

The policy-setting Federal Open Market Committee meets on June 14-15 and Ms Yellen's 12:30 pm speech in Philadelphia is the final scheduled comment from a Fed official before policy makers enter their self-imposed quiet period before a meeting, when they refrain from making public remarks.

The US economy created 38,000 jobs in May, the weakest in almost six years, according to US Labour Department figures published Friday. That's fuelled speculation the Fed won't be as eager to tighten monetary policy in 2016 after raising rates late last year for the first time in nearly a decade.

Mr Lockhart said Friday's labour market report could reflect a "natural slowing of job generation as we get closer and closer to full employment," as well as normal volatility in monthly reports. Still, the US economy appears to be "on a moderate growth path," Mr Lockhart said. "I don't think the Fed is behind the curve as far as inflation."

Britain's June 23 referendum is another reason for caution and Lockhart said a vote to leave the EU could affect foreign exchange markets and dampen US exports - a coded way of signalling that one spillover could be a stronger dollar.

The Atlanta Fed chief said he is "more inclined to think in terms of two moves between now and the end of the year" for interest rates, rather than three.

The probability of a June hike implied by pricing in federal funds futures contracts, which had risen as high as 34 per cent in late May as Fed officials hinted at their eagerness to raise rates, tumbled to just 4 per cent following the employment report.

Mr Lockhart's comments were the latest from a Fed policy maker since the unexpectedly weak May jobs report.

Eric Rosengren, president of the Boston Fed, also sounded a note of caution when speaking Monday in Helsinki. While economic growth continued to justify gradual tightening, he said, policy makers would be wise to see whether the May jobs report was "an anomaly or reflects a broader slowing in labour markets." Another regional Fed president, Cleveland's Loretta Mester, said economists "can't read too much into one number" as the report was affected by seasonal factors and a strike at Verizon Communications Inc.

"The weak employment number has not changed fundamentally my economic outlook," Ms Mester said Saturday in Stockholm. "The economy is definitely moving in the right direction."

In contrast, Fed Governor Lael Brainard told an audience in Washington on Friday that the employment report is "sobering and suggests that the labour market has slowed."

Ms Yellen's remarks will be the final public word from the Fed before it announces its policy decision on June 15, Mr Lockhart said. "Her voice is by far the most important voice," he said.