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Fed's Lockhart sees 2015 rate hike, but reading inflation 'tricky'

Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, arrives at the opening reception of the Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming August 21, 2014. REUTERS/David Stubbs

By Ann Saphir

BERKELEY, Calif. (Reuters) - A top U.S. central banker appears to have cooled to the idea of an interest rate hike next month, saying on Monday only that the Federal Reserve will likely begin raising rates "sometime this year."

Just two weeks ago, Atlanta Fed President Dennis Lockhart told reporters he was "very disposed" to a rate hike in September.

In remarks on Monday, Lockhart said the steep drop in oil prices clouds the inflation outlook, even as the Fed has signaled it needs reasonable confidence that inflation is heading back toward its 2 percent goal before raising rates.

"It’s going to be very tricky between now and year end to read the underlying trends in inflation because of the complicated factors of the falling oil prices playing through to gasoline prices, falling commodity prices on a global basis possibly playing through to other goods at least that are in the core inflation numbers," Lockhart said in response to a question from the audience of pension fund specialists. "A sizable proportion of the components of the inflation indices have been very soft recently."

Lockhart is considered a centrist on the Fed's policy-setting panel, which is set to consider its first rate hike in nearly a decade when it meets next month. Amid an ongoing U.S. stock market rout and fear of China's slowdown, some economists have pushed back their expectations for a rate hike until later in the year, or even into 2016.

"Currently, developments such as the appreciation of the dollar, the devaluation of the Chinese currency, and the further decline of oil prices are complicating factors in predicting the pace of growth," Lockhart said.

U.S. stocks ended the day with steep losses in volatile trading, tracking global shares lower after a near-9 percent dive in China shares and a tumble in oil prices.

Still, Lockhart reiterated his own bank's baseline forecast of moderate economic growth, continued employment gains, and gradually rising inflation.

"I expect the normalization of monetary policy — that is, interest rates — to begin sometime this year," Lockhart said.

Rate rises will be gradual, he said, meaning "something other" than raising interest rates by a quarter of a percentage point each meeting.

There will be no set pace of rate hikes following the initial rate increase, he added.

(Reporting by Ann Saphir; Editing by Meredith Mazzilli)