Atlanta Federal Reserve Bank President Dennis Lockhart said he sees further “headwinds” to the recovery even as the U.S. economy improves in 2011.
Lockhart cited uncertainty among businesses and consumers and the damaged housing and credit markets as likely to hold back economic growth, underscoring his view that the Fed’s $600 billion bond-purchase program is a worthwhile insurance policy against risks.
“The headwinds I have emphasized will restrain growth but not stop it,” Lockhart said today in prepared remarks for a speech in Atlanta that was canceled because of snow. He said he expects growth in gross domestic product, personal incomes, and jobs “to be better in 2011 than in 2010.”
Lockhart said he remains “comfortable” with his decision to support a second round of asset purchases, which he said have contributed to an improved economic outlook. His defense of the easing is in line with that of officials such as vice chairman Janet Yellen, who said in a Jan. 8 speech that the Fed’s two rounds of large-scale asset purchases will create 3 million jobs and keep the economy from inflation.
Since the Fed’s second round of purchases was announced on Nov. 3, the stock market has rallied, the dollar has strengthened, longer-term bond yields have risen and economic indicators have shown signs of an improving economy.
“I won’t claim that all those developments have been the direct result of the monetary policy actions, but I definitely believe policy has contributed to accumulating momentum and a better outlook,” Lockhart said.
The Labor Department said last week that the economy added 103,000 jobs in December, fewer than forecast by economists. The unemployment rate, which only includes those looking for work, fell to 9.4 percent from 9.8 percent as many workers gave up on the labor force altogether.
“The rate of job creation is still below the level that will consistently bring down the unemployment rate, but the labor market is showing signs of improvement,” Lockhart said, and the economy is “moving forward but at a modest pace.”
“The drag of uncertainty on economic activity persists as we enter 2011,” Lockhart said, citing an unclear outlook for tax policy, regulatory policy and the economy itself.
Lockhart said the repair of household balance sheets and of credit markets will eventually place the economy on a more sustainable trajectory and that “the stage is set for some credit expansion in 2011.”
“Today’s headwinds to a significant degree reflect structural adjustments that will, in the longer term, place the U.S. economy on a stronger footing,” he said. “The preconditions for strong future growth are reduced uncertainty, improved consumer and household finances, and healthy credit markets.”
The Atlanta Fed released the text of the speech on its website. Lockhart’s appearance at the Rotary Club of Atlanta was canceled as a snowstorm blanketed the city. Georgia Governor Sonny Perdue and Atlanta Mayor Kasim Reed declared a state of emergency and urged people to stay indoors and avoid driving unless absolutely necessary. Hundreds of schools, government offices and businesses were closed, and thousands were without power.
Lockhart, 63, has led the Atlanta Fed since 2007. Fed presidents rotate voting on monetary policy with Lockhart next voting in 2012.
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