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Fed's Williams, Lockhart see at least two rate hikes in 2016

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Two regional Federal Reserve bank presidents said at least two interest-rate increases may be warranted this year because the economy continues to expand and inflation is picking up, pushing back against expectations the central bank will delay action next month.

[NEW YORK] Two regional Federal Reserve bank presidents said at least two interest-rate increases may be warranted this year because the economy continues to expand and inflation is picking up, pushing back against expectations the central bank will delay action next month.

"Currently my assumption is two, possibly three," Atlanta Fed President Dennis Lockhart said Tuesday in Washington. He was joined at the Politico-hosted event by his San Francisco Fed colleague John Williams, who said "gradual means two to three rate increases this year."

That view contradicts investors who see only a small chance of a move at the next gathering of the policy-setting Federal Open Market Committee on June 14-15. The panel must weigh how quickly to raise rates again after lifting its benchmark for the first time in December to a range of 0.25 per cent to 0.5 per cent.

Both officials said markets were not giving enough weight to the possibility of a move in June.

"The markets are certainly more pessimistic than I am," Mr Lockhart said. "My view is June is a live meeting" and "six weeks later we meet again," Mr Williams said, referring to the July 26-27 gathering of the FOMC.

Their remarks were the latest from regional Fed officials seeking to keep their options open, though there's been no recent public comment from Chair Janet Yellen or her number two, Stanley Fischer. Ms Yellen will speak at Harvard University on May 27 and Mr Fischer delivers remarks Thursday in New York.

Investors see roughly a 14 per cent chance of a move at the June FOMC, according to pricing in federal funds futures markets, up from 4 per cent on Monday.

"The incoming data have been actually quite good and reassuring," said Mr Williams, a former head of research to Yellen when she ran the San Francisco Fed. "We are in a position to continue to engage in normalisation of monetary policy."

US Labor Department data released Tuesday showed inflation pressures may be building. While the Fed's preferred price gauge remains under its 2 per cent goal, consumer-price inflation, which the Fed doesn't target, increased 0.4 per cent in April compared with the month before, registering the largest gain in three years, and was up 1.1 per cent year-over-year.

The rate hike message was reinforced by comments later on Tuesday by Dallas Fed President Robert Kaplan, who said that action at "upcoming meetings" will be appropriate.

"Whether that's the June or July meeting I don't know, but we're making enough progress where I think it's appropriate for me to be advocating removing some level of accommodation," he told reporters after delivering a speech in Midland, Texas.

None of the three officials are voting members of the FOMC this year.

Investors will get more clues about the thinking of other policy makers when the Fed releases minutes of the April FOMC meeting at 2 pm on Wednesday in Washington.

BLOOMBERG