By Ben Leubsdorf And Victoria McGrane
WASHINGTON--Federal Reserve governor Jerome Powell said that the central bank's conditions for deciding when to initiate interest rate increases could be met "as soon as September."
"I don't think the odds are 100%...that we will realize those conditions, but that's my forecast," Mr. Powell said Tuesday morning at an event hosted by The Wall Street Journal in Washington. He said the odds were closer to 50-50 that the Fed would be ready to raise rates by that date.
He added that his forecast, which remains data dependent, also includes an additional rate increase in December following an initial increase in September.
For the Fed to be ready by September, Mr. Powell said he would need to see economic growth that has been "significantly stronger" than seen during the first part of the year as well as signs that factors keeping inflation down--namely low oil prices and a strong U.S. dollar--are abating.
The Fed last week said the U.S. economy was growing "moderately" after a first-quarter stall, with a pickup in hiring, moderate growth in household spending and "some improvement" in the long-shaky housing market. Still, officials noted inflation continued to undershoot the Fed's 2% annual target.
The U.S. central bank has kept its benchmark short-term interest rate pinned near zero since December 2008, but reaffirmed last week that officials expect to begin raising rates before the end of 2015. "It's not an ironclad guarantee, but we anticipate that that's something that will be appropriate later this year," Chairwoman Janet Yellen said .
Most private economists expect the Fed will stay on hold at its coming July 28-29 meeting and begin to raise rates at its Sept. 16-17 meeting.
Ms. Yellen has emphasized that officials expect to raise rates fairly slowly over the coming months and years. "Although policy will be data dependent, economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal-funds rate," she said last week.
The fed-funds rate is currently set at a range of zero to 0.25%. Fed policy makers, in updated projections last week, saw the benchmark rate rising to a median of 0.625% at the end of 2015, then climbing to 1.625% at the end of 2016 and 2.875% at the end of 2017.
That suggests officials expect to raise the rate by 0.5 percentage point this year, then by 1 percentage point in 2016 and 1.25 percentage points in 2017. The Fed raised rates by 0.25 percentage point per meeting during its 2004-2006 tightening cycle.
Last week, Federal Reserve Bank of San Francisco President John Williams predicted two rate increases this year of 0.25 percentage point each.
Mr. Powell, the sole Republican on the Fed's board of governors, has been in office since May 2012. This spring, he signaled support for gradual rate increases because, he said, the financial crisis left uncertainty in its wake about how to gauge when the economy is approaching its capacity.
"The financial crisis did significant damage to the productive capacity of our economy, and the damage was of a character, extent and duration that cannot be fully known today," Mr. Powell told the Council on Foreign Relations in April. "And given this uncertainty, it's even more difficult than usual to assess how much slack remains in the economy. It seems plausible that at least part of the supply-side damage could be reversed if the economy enjoys a period of sustained growth."
On Tuesday, he acknowledged that conditions in the broader global economy present some challenges for the U.S. economy, though he said the data coming out of Europe is more encouraging lately. He said the Fed's models take all these factors into account and to the extent factors such as the strong dollar continue the U.S. economy "will grow more slowly," and U.S. monetary policy will adjust accordingly.
Mr. Powell also expressed confidence that financial markets wouldn't be caught by surprise when the Fed does decide to make its first move to higher interest rates.
"We are trying to be as transparent as possible," he said. So much attention is being paid to the issue that he finds it "unlikely" that when the Fed starts to seriously consider raising rates "that wouldn't be widely understood in the markets."