Atlanta Fed President Lockhart Keeps Hawkish View for September Liftoff

Talking Points:

• Dennis Lockhart says September may be appropriate time to hike rates
• US 10-year yield rose from a 2-month low after the hawkish remarks
• The USDollar Index erased most of its Asia and European session losses after the remarks

Atlanta’s Federal Reserve President Dennis Lockhart leveraged the likelihood of a September liftoff saying it would take “significant deterioration” in the US economy for him not to support a move at the next meeting. Lockhart, considered a centrist between dovish and hawkish monetary policy members, added a stronger voice to the debate of a 25-basis-point hike in the September FOMC. He added, “As of today…the economy is ready and it is an appropriate time to make a change.”

Dennis Lockhart didn’t seem concerned about a dramatic market response on the first hike but noted the first liftoff will begin a series for further rate hikes. Lockhart said the cumulative economic progress has been encouraging as well as the positive employment numbers. His comments follow those of St. Louis Fed President James Bullard who Friday insisted, “We are in good shape” for a September liftoff.

Lockhart’s comments impacted markets as US 10-year yields rallied from their lowest levels since early June. The 10-year US yield advanced to 2.22% following the news. Shorter maturity 2-year notes witnessed a more intense 9.6 percent rally. With the prospect a higher rates, the low-yielding fixed income assets are losing their appeal.

The US Dollar was similarly lifted by the hawkish sentiments from Atlanta’s Fed President as it retraced nearly all of its early day losses. The Dollar fell for most of the Asia and European sessions against its major counterparts reaching down towards zone support carved out over the past three weeks (see US Dollar Technical Analysis). The recent spike comes after a July Federal Open Market Committee meeting which did not give clear commitment to timing amongst its members

The Federal Reserve has three more monetary policy meetings this year. The next gathering is scheduled for September 17. That will be followed by meetings and decisions on October 28 and December 16.

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