Fed's Lockhart - Brexit, uncertainty, require patience on rates

By Howard Schneider

VICTOR, Idaho (Reuters) - The U.S. Federal Reserve should remain "cautious and patient" with any future interest rate increases as the fallout from the recent Brexit vote becomes clear, Atlanta Fed President Dennis Lockhart said on Thursday, adding weight to a core of U.S. central bankers who appear poised to remain on hold.

Nevertheless, he said it was still possible the Fed could raise rates as many as two times this year, depending on how the economy evolves.

"I still can imagine circumstances in which at least one policy move could take place and possibly two. Of course it will depend on the economy," he told reporters following an address at the Global Interdependence Center's Rocky Mountain Economic Summit.

In a speech, Lockhart said it was clear to him that the United Kingdom's decision to leave the European Union was not a "Lehman moment" of systemic importance to the global economy.

But he noted that a third of businesses his staff surveyed following the referendum said it "made their sales outlook more uncertain. They indicated they would be more cautious in hiring and capital spending decisions as a result of Brexit."

The immediate impact on the United States is likely small, he said, but "the consequences of Brexit may play out over a number of years, and the associated uncertainty could become an economic headwind."

"I don't believe the (Federal Open Market Committee) is behind the curve in the setting of the policy rate. For that reason, I'm comfortable with a cautious and patient approach to policy in the near term," Lockhart said. "Sometimes you just have to take some time and let the waters clear."

Lockhart did not say how long it may take to get clarity, but his comments show the stark shift in expected policy that has taken place at the Fed since it raised rates in December for the first time in a decade. At the start of the year, Lockhart was among the many Fed officials who anticipated raising rates four times this year.

The Fed's median rate outlook has since fallen to two increases this year, and many investors believe that is optimistic, with one or none seen as more likely.

Lockhart said the U.S. economy on its own is doing well, with growth still anticipated at 2 percent, an improving labor market, and "brisk" consumer spending. He said he expects the Fed's 2 percent inflation and full employment goals to be met next year.

While Lockhart told reporters it was conceivable the Fed could move on rates in the near term, there was reason for caution on the economic outlook.

"It's too early to sound the 'all clear,'" Lockhart said in his address. "Elevated and protracted uncertainty will not help growth prospects of an economy constrained by low business fixed investment...Uncertainty that reduces business fixed investment activity is not helpful."

(Reporting by Howard Schneider; Editing by Andrea Ricci)