Fed’s Lockhart Says Need for More Monetary Easing Isn’t Clear

Wednesday, 29 September 2010 09:29 AM

Sept. 28 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said policy makers haven’t reached a consensus on whether to undertake a new round of buying Treasuries, and the need for further monetary easing isn’t clear.

“For me personally it is not a foregone conclusion that more accommodation is required,” he told reporters after a speech today in Sewanee, Tennessee. “I am not yet of a firm mind of what exactly that problem is, and for that reason I’m not yet committed to a particular course of action that might involve further accommodation.”

Policy makers said after a meeting on Sept. 21 that too-low inflation and sluggish growth may warrant a second round of unconventional easing. Fed officials “must come to grips” in the coming weeks “with the question of whether there is anything they can do to improve the situation in the economy and, if so, what that action should be,” Lockhart said in his speech about the Federal Open Market Committee’s decision.

“If in six months or 12 months the economy is operating at the low level it is today” and unemployment is 9.5 percent or higher, “I will be comfortable with taking action,” he said.

The economy grew at an “anemic” annual rate of 1.6 percent in the second quarter and remains “weak” in the current quarter, he said. While the slowdown should be temporary, the U.S. will need to create at least 150,000 new jobs a month to make “significant progress” on unemployment, which was 9.6 percent as of August, he said.

‘Several Drags’

“To summarize, the picture painted is one of lackluster economic expansion with several drags on recovery,” said the former Georgetown University professor, who joined the Atlanta Fed in March 2007 and doesn’t vote on policy this year. Businesses unsure about the economic outlook and direction of fiscal policies remain reluctant to hire and careful about spending, leading to slower growth and inflation that’s too low, he said.

The dollar slid today as investors speculated the Fed will increase purchases of debt to ensure the economic recovery. A bigger-than-forecast drop in consumer confidence to the lowest level since February and the smallest year-over-year gain in home prices since March helped trigger bets that the Fed would announce another round of U.S. bond purchases, a practice known as quantitative easing.

Index Rose

The Standard & Poor’s 500 Index climbed 0.5 percent to 1,147.70 at 4 p.m. New York, recovering from an early slump. The Dollar Index, which measures the currency against six major peers, slid to an eight-month low of 78.17.

Fed officials said in their Sept. 21 statement that inflation is “somewhat below” levels consistent with their congressional mandate for price stability. The Fed’s decision positions the central bank to expand its near-record $2.3 trillion balance sheet as soon as November.

The debate among policy makers on the “diagnosis of our economic troubles and the appropriate prescription” will “intensify over the coming weeks,” Lockhart said, adding that he and his staff “will be tackling these and related questions to prepare for the important decisions coming.”

While the FOMC’s statement didn’t say what level of inflation would be consistent with the Federal Reserve Act’s directive, Lockhart said after his speech that 1.5 percent to 2 percent is a “healthy rate of inflation.” He added that a low rate of inflation “requires very careful watching” and “one gets nervous around 1 percent or lower.”

The Commerce Department’s personal consumption expenditures price index, excluding food and energy costs, rose at a 1.4 percent rate in July and has been below a 2 percent year-over- year rate for 20 consecutive months.

“I do not expect outright deflation to develop,” Lockhart, 63, said during the speech at The University of the South. Yet “the slowing of the economy in the middle of this year, combined with a very low measured rate of inflation, suggests to me the risk of deflation cannot be dismissed.”

--With assistance from Scott Lanman in Washington and Michael P. Regan in New York. Editors: James Tyson, Christopher Wellisz

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Joshua Zumbrun in Sewanee, Tennessee at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

© Copyright 2018 Bloomberg News. All rights reserved.

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Sept. 28 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said policy makers haven’t reached a consensus on whether to undertake a new round of buying Treasuries, and the need for further monetary easing isn’t clear. “For me personally it is not a...
Wednesday, 29 September 2010 09:29 AM
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