Fed’s Dennis Lockhart sees end of US QE stimulus programme this year

Dubai/Atlanta: Federal Reserve Bank of Atlanta president Dennis Lockhart said he expects the US central bank to end its bond-buying programme by October or December before raising interest rates next year as the economy gathers pace.

“This is a first step in the gradual normalization of monetary policy,” Lockhart, who doesn’t vote on monetary policy this year, said in remarks prepared for a speech on Sunday in Dubai. “Assuming continued recovery of the US economy and the closing of employment and inflation gaps, the Fed’s policy interest rates would begin to rise at some point next year.”

Fed chair Janet Yellen said on 7 May that “a high degree of monetary accommodation remains warranted” as inflation and employment fall short of the Fed’s congressionally mandated goals. Policy makers last month trimmed monthly bond purchases by $10 billion for the fourth consecutive meeting.

Lockhart said he expects the world’s biggest economy to expand about 3% this year.

“I expect stronger growth will help absorb underutilized resources in the economy, especially labour resources,” Lockhart said to the American Business Council of Dubai at the Dubai International Financial Center.

The Federal Open Market Committee (FOMC) on 30 April announced a reduction in monthly bond buying to $45 billion. Dallas Fed president Richard Fisher, who votes this year on the FOMC, said on 9 May he favours a steady tapering in purchases by the Fed, with a $15 billion cut to zero in October.

Yellen said in 7 May testimony to the Joint Economic Committee that the central bank will probably end bond buying in the fall if the labour market continues to improve.

The US payrolls rose last month by 288,000 in the biggest gain in two years, and the 6.3% jobless rate was the lowest since September 2008, according to a 2 May labour department report.

A former Georgetown University professor, Lockhart has led the Atlanta Fed since 2007. His district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee. Bloomberg