BCS Barclays PLC

NEW YORK—Federal Reserve Bank of Atlanta President Dennis Lockhart stuck to his guns Monday and said he still expects the U.S. central bank to raise short-term interest rates in the next few months, even as he recognized some of the stresses facing the U.S. economy and financial markets.

"I expect the normalization of monetary policy—that is, interest rates—to begin sometime this year," Mr. Lockhart said. "I expect normalization to proceed gradually, the implication being an environment of rather low rates for quite some time."

What Mr. Lockhart did not do is repeat that he believed the economy was ready for the Fed to start raising rates in September. In an interview with The Wall Street Journal on Aug. 4, he said—speaking for himself—there was a "high bar" for not moving then.

But that outlook for central-bank policy has become hazier over the past few weeks. There are significant questions about the Fed moving to boost the cost of borrowing in the U.S. economy as China's economy has run into trouble and financial markets have suffered significant losses. Monday was proving to be a wild ride for investors across the globe, and many now believe the instability and questions about the global economy's future should rule out a Fed rate rise for now. On Monday, Barclays said it now believes the Fed will raise rates next March, rather than in September.

Mr. Lockhart, a voting member of the Federal Open Market Committee, acknowledged the general climate of uncertainty in his speech at the Public Pension Funding Forum in Berkeley, Calif., but he didn't comment on the market's most recent developments. Mr. Lockhart is widely looked to as a centrist on the FOMC and a reliable guide to Fed thinking, and he said in his speech he is still hopeful about the future of the U.S. economy.

"The Greek fiscal crisis was unsettling with its potential for a major financial event or worse," the official said in the speech's prepared text. He added that current developments like "the appreciation of the dollar, the devaluation of the Chinese currency, and the further decline of oil prices are complicating factors in predicting the pace of growth." That said, Mr. Lockhart said "our baseline forecast at the Atlanta Fed is for moderate growth with continuing employment gains and a gradually rising rate of inflation."

Mr. Lockhart said in his speech he isn't that worried about the potential of problems within the nation's pension system to cause greater economic damage.

"I don't see the underfunding of public pension funds as a systemic risk," Mr. Lockhart said. "Nor do I see state and local government fiscal stresses, to which pension underfunding can contribute, plausibly posing systemic-event risk individually or collectively."

Write to Michael S. Derby at michael.derby@wsj.com

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(END) Dow Jones Newswires

August 24, 2015 16:45 ET (20:45 GMT)

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