Lockhart: Time to Start Thinking About Raising Rates

I’ve been saying that the Federal Reserve will probably raise interest rates before most people expect. Since last March, we’ve been in a Golden Period for stocks investors with very low interest rates and steeply low equity prices. Of course, equity prices are now no longer as low as they used to be. This may soon come to an end and today we got confirmation from Dennis Lockhart, the president of the Atlanta Fed.

The U.S. economy is almost strong enough to allow the Federal Reserve to begin thinking about raising interest rates, Atlanta Fed President Dennis Lockhart said on Thursday.
While he noted unemployment would likely remain elevated for some time, Lockhart said the U.S. central bank should not wait too long before beginning to tighten the reins.
“The time is approaching when it will be appropriate to consider recalibrating interest rate policy. I do not believe that time has yet arrived,” Lockhart told .
“As the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability.”
In response to the most severe financial crisis in generations, the Fed not only slashed interest rates effectively to zero but also undertook a host of emergency measures such as buying up Treasury and mortgage bonds.
Lockhart’s comments mark a significant change in tone for the regional Fed president, who has been among the most dovish on the central bank’s policy in recent months. They suggest firmer growth in the United States is catching the attention of Fed policymakers, despite the renewed risks to the outlook from the turmoil surrounding European debt markets.

The timing of a rate increase is still an issue. I think it could happen by the end of the summer. I also think the Fed may raise the Fed Funds rate by 50 or 75 basis points.

Posted by on June 3rd, 2010 at 9:54 am


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