Fed's Lockhart says 'murky' data complicates rate hike decision

By Howard Schneider

West Palm Beach, Fla. (Reuters) - Atlanta Federal Reserve Bank president Dennis Lockhart said on Thursday the recent "murky" run of U.S. data has him leaning against a June interest rate hike, but added he is confident the economy will remain on track.

"I would lean to a little later versus a little earlier," said Lockhart, saying that a below-par March U.S. employment report and other factors are making the economy difficult to read. He added that he expects the signs of weakness will prove transitory, but he wants more evidence to be sure.

"I don't think it is a stark decision where we are risking a lot by going with one date versus another date. So I don't take June off the table it is just not my preference," Lockhart said.

His remarks to reporters following a lunch with business leaders in West Palm Beach, Florida, added to the impression that the Fed may push its initial rate hike into the fall - an expectation already strong among investors and many economists.

The Fed has said it will consider rate hikes on a meeting-by-meeting basis, beginning in June. It has not raised rates since 2006, and its key lending rate has been at a near-zero level since late 2008 as part of the effort to repair the damage from the 2007-2009 financial crisis and recession.

Policymakers have said a strong run of data in April and May could push the central bank back the other way.

But Lockhart, a voting member of the Fed's rate-setting committee this year, said he thought it unlikely that the next two months would provide enough evidence to make him adequately confident in the economy's progress toward the central bank's goals of full employment and 2 percent inflation.

Inflation in particular is weak. While Lockhart said he does not necessarily need to see inflation rise to vote for a rate increase, "I would prefer a later lift-off date ... I would like to see more confirming evidence."

Fed officials are split over the question of whether to raise rates sooner, and perhaps more gradually, or later, and perhaps more sharply.

Some, like Cleveland Fed President Loretta Mester, lean strongly toward an earlier rate hike. Speaking in New York on Thursday, Mester warned that waiting too long could throw financial markets for a loop.

Boston Fed President Eric Rosengren, speaking in London on Thursday, questioned the "rush" to raise rates, saying that he sees inflation likely staying below 2 percent for several more years.

Fed Vice Chair Stanley Fischer, speaking on CNBC, pegged the timing of a rate rise to the question of how fast the economy will bust free from the first-quarter slowdown. "We'll try to do it at the best possible time and we would like to see the economy beginning to grow again," Fischer said.

Weak first-quarter data was highlighted by the soft March nonfarm payrolls data. A crash in oil prices that has undermined U.S. energy sector investment also has yet to be offset by an expected boost from consumers spending the money saved from cheaper gasoline.

The March employment numbers, Lockhart said, may indicate that the pace of improvement in the labour market is slowing, yet he said the economy overall appears to be motoring ahead at above-trend growth that may hit 3 percent for the year.

"A murky economic picture is not an ideal circumstance for making a major policy decision," Lockhart said. "In spite of the recent weakness, I do not believe the economy in some fundamental way is faltering, stalling, slowing."

Lockhart is considered a bellwether of sorts - anchored neither among those who feel a long overdue rate hike is raising financial risks, or those who feel the economy may be years away still from full recovery.

(Reporting by Howard Schneider; Editing by Paul Simao)