June rates rise on cards if numbers stack up

Federal Reserve Bank in San Francisco. Photo / Getty Images

Federal Reserve Bank of San Francisco president John Williams, who will vote on policy this year, said raising US interest rates in June would be a close call amid "strong momentum" in the labour market and weaker wage gains.

"I would expect by June that the argument pro and con for lifting off rates will be probably a close call" assuming that inflation doesn't fall further, Williams said. "It's a reasonable guess."

His remarks dovetailed with earlier comments from Atlanta Fed chief Dennis Lockhart, also a voting member of the policy-setting Federal Open Market Committee this year, that rate liftoff in mid-2015 would probably be justified.

US stocks extended declines on the comments by Williams before markets closed in New York. The Standard & Poor's 500 Index ended 0.8 per cent lower at 2028.26.

Fed chairwoman Janet Yellen said last month not to expect the central bank to raise rates before the end of April, leaving expectations intact for a move around mid-year following sustained labour market improvements.

She also said officials would want to be confident that inflation was on track to head back up toward the Fed's 2 per cent goal before raising rates for the first time since 2006.

Labour Department data last week showed the jobless rate fell to a six-year low of 5.6 per cent even as hourly earnings dropped by 0.2 per cent in December from the prior month, the biggest comparable decline since records began in 2006.

Williams said the report shows "significant employment gains" are continuing in the US as it makes progress toward full employment, which he expects to reach by the end of this year or early in 2016.

"On the other side, the wage and price data are still soft, so in terms of thinking about June my views haven't really changed," Williams said. "If inflation data come in significantly softer than expected and we're not seeing some kind of better growth in wages, those are clearly factors that I'd be taking into consideration in the timing of liftoff."

The Fed's main gauge of prices, the personal consumption expenditures index, hasn't exceeded the central bank's 2 per cent objective since March 2012. It has slowed in recent months to a pace of 1.2 per cent in November from a year earlier.

The committee will meet this month in Washington. Fifteen of 17 officials have said they expect the federal funds rate will rise this year after remaining near zero since December 2008.

- Bloomberg