A March Fed Pause Wouldn’t Mark End of Tightening, Lockhart Says
(Bloomberg) -- The Federal Reserve has plenty of reasons to pause its interest-rate increases in March to take stock of the economy, according to former Federal Reserve Bank of Atlanta President Dennis Lockhart.
But a pause, while justified, wouldn’t mean the tightening cycle is at an end, Lockhart said in a Bloomberg Television interview on Thursday. He said the benchmark federal funds rate is still below what the Fed considers neutral, and two more hikes are probably needed to get it up to that level.
Lockhart, who retired in early 2017, said the government shutdown will have an effect on the economy, which is already slowing, while the first-quarter is often a “puzzle” due to bad weather and other effects.
“They have every justification if they wish to not proceed in lockstep with their earlier increases but rather take a pause, and wait and see. It would not necessarily signal an end to rate increases, it would simply be a pause to evaluate.”
He also said there seems to be a disconnect between policy makers and markets about the U.S. outlook and the risk of recession, but the Fed has to do what’s best for the broad economy.
“Monetary policy is about the real economy, not the financial economy. So the FOMC will do what it thinks is best for Main Street,” he said. “From time to time that may seem out of alignment with what markets are signalling. That’s very much the case today.”
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