Fed officials pushing for rate hike unfazed by market turmoil

The US Federal Reserve building in Washington, DC.
The US Federal Reserve building in Washington, DC. PHOTO: REUTERS

JACKSON HOLE, Wyoming (REUTERS) - Recent market turmoil should not delay the Federal Reserve from raising interest rates at least once, given that the global equities selloff and China's economic slowdown have had little effect on the U.S. economy, a top Fed official said on Friday.

St. Louis Fed President James Bullard told Reuters he still favored hiking rates at the Fed's next policy-setting meeting in mid-September, though he added the U.S. central bank would be hesitant to do so if markets were still volatile at that time.

"Nothing has happened here that is so radically changing the U.S. outlook that the basic trajectory of policy would change," Mr Bullard said in an interview on the sidelines of a global central bankers' conference in Jackson Hole, Wyoming.

"My preference would be, and we have a strategy, to go sooner but go gradually. So let's get going, and we can adjust the pace of increases depending on how data come in on the U.S. economy and the forecast evolves," said Mr Bullard, who previously said there was a case for hiking rates next month.

Market volatility has sowed doubts over the timing of the rates "liftoff," particularly after New York Fed President William Dudley, a close advisor to Fed Chair Janet Yellen, said on Wednesday a September rate hike now appeared less compelling.

Bullard joined other Fed policymakers who have appeared less fazed by whip-sawing stock prices that in part reflect concerns about China's economy. Wall Street also is on edge over when the Fed will begin tightening policy, ending years of monetary stimulus that pumped trillions of dollars into the global banking system.

Cleveland Fed President Loretta Mester said the U.S. economy still could handle a modest rate hike, though she did not commit to backing a move next month. "I want to take the time I have between now and the September meeting to evaluate all the economic information that's come in, including recent volatility in markets and the reasons behind that," Mester said in an interview with the Wall Street Journal published on Friday.

"But it hasn't so far changed my basic outlook that the U.S. economy is solid and it could support an increase in interest rates."

Minneapolis Fed President Narayana Kocherlakota, who has long argued against lifting rates any time soon, said he does not see a case for a rate hike this year unless there is a major change in the economic outlook.

"Barring that, I don't see a near-term increase in interest rates as being appropriate, and by near-term I mean really through the course of 2015," he told CNBC from Jackson Hole.

Mr Kocherlakota, who will leave the Fed at the end of the year to return to academia, said he thought it would take years for the U.S. economy to be strong enough to generate a healthier amount of inflation, and that it would be appropriate to consider further stimulus.

Mr Bullard told Reuters the Fed could hike rates once then"hang out" at that level if inflation remains too low.