UPDATE 1-Lockhart: Fed discount rate hike not a tightening

(Adds detail, comment)

By Pedro Nicolaci da Costa

AUGUSTA, Ga., Feb 18 (BestGrowthStock) – The Federal Reserve’s
decision to raise the discount rate it charges to banks for
emergency loans should not be seen as a tightening of monetary
policy, or a signal that such a move is forthcoming, a top Fed
official said on Thursday.

Dennis Lockhart, president of the Federal Reserve Bank of
Atlanta, said he expects a slow economic recovery with weak
employment growth, which would warrant keeping borrowing costs
low for some time.

He worries that problems in the commercial real estate
sector could derail some of the progress made in restoring the
functioning of credit markets.

“Monetary policy — as evidenced by the fed funds rate
target — remains accommodative,” Lockhart told the Augusta
Metro Chamber of Commerce. “This stance is necessary to support
a recovery that is in an early stage and, in my view, still
fragile.”

The Fed on Thursday raised the discount rate by a quarter
percentage point to 0.75 percent, a response to what it sees as
improved financial market conditions. The central bank’s main
policy tool, the federal funds rate, remained in a zero to 0.25
percent range.

“I would not interpret this action as a tightening of
monetary policy or even a sign that a tightening is imminent,”
said Lockhart.

It was unclear that investors would take the central bank
at its word.

“The Fed is billing this not as a monetary policy change to
its main target rate, but the market obviously will take this
as a bearish sign that the Fed is going to start to tighten,”
said Michael Pond, a bond market strategist at Barclays Capital
in New York.

While Lockhart appeared relatively pessimistic about the
economy’s prospects, he said the central bank should be
“nimble” in its ability to react to unexpectedly strong
economic growth.

Still, he indicated such a rosy scenario is unlikely.

“I expect a very slow recovery of employment markets and,
therefore, a slow decline of the unemployment rate,” Lockhart
said.

Stock Analysis

(Editing by Leslie Adler)

UPDATE 1-Lockhart: Fed discount rate hike not a tightening