Tags: Lockhart | Fed | balance sheet | consequences

Atlanta Fed’s Lockhart: Increasing Fed Balance Sheet May Have ‘Unintended Consequences’

By    |   Thursday, 04 April 2013 11:43 AM

There could be several consequences in the buildup of the Federal Reserve’s balance sheet, according to Atlanta Fed President Dennis Lockhart.

“Inflation has to be front and center as a concern. The potential that a large balance sheet simply changes the public’s view of inflation going forward is a key [consequence],” Lockhart told CNBC. “A second one would be the losses we might incur if we were in the process of unwinding and selling assets.

“I think all of us recognize there could be some unintended consequences in the buildup of the balance sheet on the Fed.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Lockhart said he wouldn’t totally rule out the Fed tapering its quantitative easing this summer.

“I think we need a few more months of really solid data and evidence that the recovery is moving ahead,” he noted. “The last two years we have had a strong first quarter, which they certainly will get when the numbers come out, followed by a swoon in the middle of the year. I really want to get beyond that.”

Evaluating the health of the economy involves a dashboard approach including “10 or 12” indicators, Lockhart explained.

The key indicators are the unemployment rate, job creation and initial claims, he said.

“But we look at a little more of a broad set of indicators of how the employment markets are evolving. I would love to see 7 percent [unemployment]. The approach I’m taking is I’m thinking of this as a confidence in the outlook-building process,” Lockhart added.

“As the months go on throughout this year, if my confidence in the outlook increases, then I will be in a position to make a judgment that we have seen substantial improvement in the outlook.”

The Fed's easing program isn’t boosting the economy, David Kelly, chief global strategist at JPMorgan Funds, said last month.

The Fed is embarking on a “stupid policy,” he told CNBC. “[It’s] akin to price fixing.”

The central bank is buying $85 billion of Treasurys and mortgaged-back securities a month. And it has kept the federal funds rate at zero to 0.25 percent for more than four years.

The economy would be just as strong without the Fed actions, Kelly says.

What the economy lacks is confidence, not liquidity, Kelly explains. "I don't see why the Federal Reserve is boosting liquidity, [thereby] depressing confidence, to try and achieve [low] long-term interest rates."

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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There could be several consequences in the buildup of the Federal Reserve’s balance sheet, according to Atlanta Fed President Dennis Lockhart.
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2013-43-04
Thursday, 04 April 2013 11:43 AM
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