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Lockhart says no urgency to hike rates as Fed evaluates Trump policy

HUNTSVILLE, Ala. (Reuters) - The U.S. Federal Reserve does not need to rush to raise interest rates as it evaluates how the new Trump administration's policies may effect the economy, Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday.

Lockhart, who retires from his position at the end of the month, said he was "not dogmatic" about whether the economy will likely warrant two or three rate increases this year, but that in either case "I don't really see compelling reasons to move ahead in March."

Lockhart spoke after Fed Chair Janet Yellen told a Congressional hearing on Tuesday that March remained a "live" meeting for a possible rate hike, and that the Fed did not want to fall behind in lifting rates as the economy grows and inflation strengthens.

His remarks also come as the new administration of President Donald Trump has yet to unveil details of fiscal policies that could add to economic growth and increase inflation. Rather, the first weeks of the administration have focused on issues like the executive order on immigration that Fed policymakers worry could be damaging to the economy.

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Lockhart said the chief distinction between policymakers who foresee two versus three rates hikes this year hinges on the direction of the new administration. So far, he said, it seems that any boost to growth may come later.

"What I now detect is simply that the reality of crafting those policies may take a little longer than perhaps many believed a few weeks ago. So their impact on the economy could well come later rather than sooner," Lockhart said.

Though Trump's announced intentions to cut taxes and increase infrastructure spending would "no question" boost growth in the short run, it "would be more debatable" whether that alone could lift the economy's long-run potential, Lockhart said.

In addition, he said there was potential downside in the administration's approach to trade, particularly if it damages consumer spending by, for example, raising import prices.

The administration has considered possible use of a border tax to encourage companies to use more American supplies and recapture jobs Trump regards as lost unfairly under trade deals.

"What's the most plausible downside development? Something that effects the consumer. The consumer is driving the economy now," Lockhart said. "I would attribute potential downside risk to the trade policy category, where things could somehow get out of hand in trade relations.”

(Reporting by Howard Schneider; editing by Diane Craft)

 
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