U.S. Markets

Fed's Lockhart: Brexit could 'loom large' over June policy meeting

JACKSONVILLE, Fla. (Reuters) - Atlanta Federal Reserve President Dennis Lockhart said on Tuesday that Britain’s vote on whether to stay in the European Union could “loom large” as the U.S. central bank contemplates whether to raise interest rates at its next policy meeting.

Dennis Lockhart of the Atlanta Fed takes part in a panel convened to speak about the health of the U.S. economy in New York November 18, 2015. REUTERS/Lucas Jackson

“Brexit could be a source of heightened global uncertainty,” Lockhart said in a speech before the World Affairs Council of Jacksonville, Florida, adding it “has some potential to loom large as we approach the June meeting.”

Earlier in the day, Lockhart also flagged risks to the U.S. economy posed by Britain’s referendum on EU membership, which takes place a week after the Fed next meets on June 14-15.

Fed policymakers in March forecast two rate rises this year but there was little sign in their latest policy statement last week of any hurry to raise rates again amid slowing global growth and tepid inflation at home.

However, San Francisco Fed President John Williams said on Tuesday that he would support an interest rate hike in June as long as he sees continued progress on the economy, inflation and jobs.

The Fed raised interest rates for the first time in nearly a decade in December. Investors currently see the Fed raising rates again in December and little chance of a June hike, according to an analysis of Fed Fund futures by the CME Group.

Lockhart said that he is worried that lackluster U.S. first-quarter gross domestic product growth “turns out, in fact, to be persistent” and is currently ambivalent on whether the U.S. central bank should raise rates in June.

In comments to reporters after his speech, Lockhart added he did not think the economy is at risk of overheating or that the Fed may be behind the curve on inflation.

Political uncertainty may also be affecting business investment and consumer spending, he said.

The U.S. economy has been sending mixed signals since the start of the year, he noted, with solid consumer fundamentals not showing through in domestic demand data and wage growth still tepid.

That said, Lockhart added that for the time being he favored strong jobs gains over the growth data as the more reliable signal of the health of the U.S. economy.

Separate manufacturing data from China and Britain on Tuesday rekindled fears over the pace of the global slowdown, sending U.S. stocks lower.

Reporting by Lindsay Dunsmuir; Editing by Diane Craft and Sandra Maler