Two Fed officials urge caution on timing of next rate hike

[WASHINGTON] Two more Federal Reserve officials argued for caution over the timing of the next interest-rate increase as slower US growth, a stronger US dollar and weakness abroad hinder the central bank's effort to drive inflation higher.

Philadelphia Fed President Patrick Harker and Dallas Fed chief Robert Kaplan's remarks Tuesday echoed recent calls for a slow approach to policy tightening by Chair Janet Yellen, New York Fed boss William Dudley and Chicago's Charles Evans, that have reinforced expectations that officials won't act when they meet on April 26-27.

Mr Harker told an audience in Philadelphia that while he viewed the US economy as fundamentally healthy, persistently low inflation risks undermining the credibility of the central bank's 2 per cent goal.

"These considerations make me a bit more conservative in my approach to policy, at least in the very near term," he said.

"Although I cannot give you a definitive path for how policy will evolve, it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike."

Mr Kaplan told CNBC television in an interview earlier on Tuesday that the Fed had been correct to move in December, when it lifted its target for the benchmark federal funds rate for the first time in nearly a decade, but weak US first quarter growth meant it should take its time before acting again.

'Slow and Patient'

"The move in December I think was the right move, but I think we're going to have to be slow and patient," he said. That "doesn't mean standing still. And I think we'll make another move some time in the not-too-distant-future if GDP recovers in the way I expect."

Economists surveyed by Bloomberg expect US gross domestic product growth to slow to an annualized 1.2 per cent in the first quarter compared to 1.4 per cent in the previous three months.

Some tracking estimates, which are more regularly updated with the release of major US economic indicators, are less optimistic. The New York Fed's model projects 1.1 per cent while the Atlanta Fed sees just 0.1 per cent first quarter growth.

The Federal Open Market Committee held the target range for its policy rate unchanged at 0.25 per cent to 0.5 per cent last month, citing risks from global economic and financial developments.

Forecasts released at the March 15-16 meeting showed officials had halved the number of rate increases they expect this year, from four projected in December. Investors expect just one hike this year, based on pricing in interest- rate futures.

Less Hawkish

Neither Mr Kaplan nor Mr Harker are FOMC voters this year. Their relatively moderate positions on policy contrast with the more hawkish posture of their predecessors, Richard Fisher in Dallas and Charles Plosser of Philadelphia, who both dissented in 2014 in favor of more restrictive policy.

Mr Harker said FOMC meetings later this month and in June were both "live" for policy action. He had said on March 22 that he expected that more than two rate increases would be warranted this year, and he continued to argue that three more more moves could be needed, depending on the strength of US economic data.

"I would say it's possible. We just need to let the data play out to see if the weakness that we saw in fourth-quarter GDP and first-quarter GDP are an aberration or a trend," he told reporters after his speech.

BLOOMBERG