Tags: Fed | Lockhart | Policy | inflation

Fed's Lockhart: US Inflation Dangerously Low

Friday, 15 Oct 2010 09:29 AM

U.S. economic growth is too weak at the moment to bring down unemployment, and inflation is running at levels that raise concern about deflation, Atlanta Federal Reserve President Dennis Lockhart said on Friday.

"We've slowed down pretty dramatically. Inflation is running too low. It is too close conceivably to the kind of tipping point into a deflationary environment," he told a question-and-answer session on the economy and business with Home Depot Chief Financial Officer and Executive Vice President Carol Tome.

Lockhart spoke as Fed Chairman Ben Bernanke delivered a speech in Boston that all but cemented expectations the Fed will take further steps to ease monetary policy in November.

Investors presume that, with benchmark U.S. interest rates effectively at zero, the Fed will do this by purchasing additional Treasury bonds.

Hinting he would support such a decision, Lockhart said not all U.S. unemployment can be explained by "structural" factors such as mismatches between workers' skills and available jobs.

"I have heard a very strongly argued view that the natural rate of unemployment in our country may have risen, but it is not 9.6 percent, so that suggests that there is a gap there that can be addressed by policy," Lockhart said.

U.S. unemployment has been stuck near that level for several months following a steep recession that destroyed over eight million jobs. The economy returned to growth last summer, but activity has since softened considerably, with gross domestic product expanding just 1.7 percent in the second quarter.

Late last month, Lockhart said he had not yet made up his mind about how much of the rise in the U.S. jobless rate was structural and how much of it was due to a post-recession slump in demand, saying the answer would help determine his view on policy.

Lockhart is not a voting member this year on the Federal Open Market Committee, the Fed's policy-setting body.

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U.S. economic growth is too weak at the moment to bring down unemployment, and inflation is running at levels that raise concern about deflation, Atlanta Federal Reserve President Dennis Lockhart said on Friday. We've slowed down pretty dramatically. Inflation is running...
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2010-29-15
 

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