Lockhart Says Slow Jobs Gains Warrant Low Fed Rate Through 2014
Federal Reserve Bank of Atlanta President Dennis Lockhart said slow improvement in the labor market warrants keeping the Fed’s target interest rate near zero through 2014, even as the economy shows signs of strengthening.
“I expect the economy to return to a better growth trajectory than what we saw in 2011,” Lockhart said today in a speech in Sarasota, Florida. “But I also foresee a slow and arduous return to full capacity, including full use of the nation’s human capital,” which “will simply take time.”
Lockhart, who votes on monetary policy this year, supported the Federal Open Market Committee’s pledge on Jan. 25 to keep the target interest rate exceptionally low at least through late 2014. The Fed also for the first time released policy makers’ forecasts for the timing of the first increase in the benchmark interest rate. The predictions ranged from this year to 2016.
Chairman Ben S. Bernanke said in a press conference after the FOMC meeting that the Fed is considering buying more bonds. The central bank has engaged in two rounds of asset purchases totaling $2.3 trillion to reduce unemployment. It also cut the main interest rate close to zero in December 2008.
“The recent economic news has been encouraging, but in my view we haven’t seen enough sustained improvement to be sure it will last,” Lockhart said in the text of a speech to the Global Interdependence Center at New College of Florida. “The current policy stance is appropriate for an outlook of steady, moderate growth with gradual employment gains.”
Subject to Revision
The Atlanta Fed leader said the 2014 pledge was subject to revision if the economic outlook changes. He also said the accommodative policy doesn’t compromise the Fed’s new explicit goal of holding inflation at 2 percent.
“At the moment, I favor a policy-making posture I’d call vigilant restraint,” Lockhart said. “I am prepared to be somewhat patient and watch how the situation develops.”
Lockhart said he is “pretty confident” in 2.5 percent to 3 percent growth for 2012 in the absence of shocks, which last year included higher oil prices, Japanese auto-supply disruptions and the European debt crisis.
Since the meeting, some economic reports have exceeded expectations, including a drop in the U.S. unemployment rate to 8.3 percent, the lowest since February 2009. Payrolls rose last month by 243,000, exceeding the most optimistic forecast in a Bloomberg News survey.
Among the restraints on faster growth has been a sharp decline in housing prices since 2006, which has hurt consumption as people have rebuilt savings and limited funds for startup businesses, Lockhart said. In addition, “stricter bank lending standards” have countered the use of debt to finance growth, he said.
Fed policy makers forecast an unemployment rate of 8.2 percent to 8.5 percent at the end of 2012, and 7.4 percent to 8.1 percent late next year.
Sales at U.S. retailers rose less than forecast in January, reflecting an unexpected drop in purchases of automobiles. The 0.4 percent gain reported by the Commerce Department today in Washington was half the 0.8 percent rise median forecast of economists surveyed by Bloomberg News.
Purchases excluding car dealers climbed 0.7 percent, more than projected and the biggest gain since March.
Lockhart, 65, a former Georgetown University professor, has led the Atlanta Fed since 2007. Fed presidents rotate voting on monetary policy, with Lockhart voting this year. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.
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