Fed's Lockhart: Economy Hitting On All Cylinders, Mid-Year Rate Hike Likely

(RTTNews) - The Federal Reserve is on track to raise interest rates by the middle of the year, according to Atlanta Fed President Dennis Lockhart.

The U.S. economy is now "hitting on all cylinders," Lockhart told the Rotary Club of Atlanta Monday morning. "The recovery that began in 2009 is well-advanced."

Days after the Labor Department said U.S. unemployment dropped to 5.6 percent in December, Lockhart acknowledged "more improvement in labor markets in 2014 than in any other year of the recovery."

Perhaps as important, Lockhart said he expects wages to rise. Stagnant wages were a dark lining on December's otherwise strong jobs report, prompting some Fed officials to urge patience before hiking rates.

Lockhart also said that consumers "seem to be more prepared to open their pocketbooks."

Even so, the Fed will be watching closely at incoming economic data for any signs that the recovery has stalled.

"If the early months of this year bring mixed news on the economy, the risk manager in me will lean to preferring a later date for the first policy move to an earlier one," he added.

On inflation, Lockhart noted that falling energy prices will temporarily weigh on consumer prices, but that inflation will eventually rise toward the Fed's 2 percent target.

Markets expect the Fed will first raise interest interest rates at their June meeting, with only gradual increases to follow.