Lockhart Says Lower Yields Bolster Case for No New Action
Federal Reserve Bank of Atlanta President Dennis Lockhart said falling Treasury yields take pressure off the central bank for further action as policy makers prepare for a meeting next week.
Lockhart, in a speech in Chicago, said recent U.S. economic data indicate the recovery may be losing steam, and that policy makers will need to take more steps to stimulate the economy if it becomes clear growth is slowing.
“I don’t think any of the options should be taken off the table under the current circumstances,” Lockhart told reporters after the speech. “But I am not convinced at this moment that the circumstances quite yet call for additional action.”
The Federal Open Market Committee meets June 19-20 to decide on policy with May’s unemployment rising to 8.2 percent and last month’s jobs creation the least in a year. Fed Vice Chairman Janet Yellen said last week that “stalled” improvement in the labor market and weak financial conditions could call for more accommodation.
Lockhart, who votes on the FOMC this year, said he would go into next week’s sessions with an “open mind” to review the Fed’s “very thorough” staff analysis and other participants’ views, though he was not ready to back additional action today.
Yields on U.S. Treasuries have fallen in response to the European debt crisis, with the U.S. seen as a “safe haven,” Lockhart also said. “It does in some respects take the pressure off to do something about financial conditions per se,” Lockhart said.
The benchmark 10-year Treasury yield fell four basis points to 1.59 percent in New York, according to Bloomberg Bond Trader prices. The yield earlier rose as much as nine basis points to 1.73 percent, the highest since May 30.
Some change in communications policy by the Fed is another option, with St. Louis Fed President James Bullard’s idea of a monetary policy report “a possibility,” Lockhart said. While the FOMC releases economic and interest rate projections of individual members, a “more holistic” communications on the economic outlook may be beneficial, he said.
“The indicators of economic strength so far in 2012 have been underwhelming,” Lockhart said in today’s speech to the Tennessee Bankers Association in Chicago that repeated two speeches last week. “I expect the recovery process to be slow and drawn out. I think the most reasonable expectation is moderate growth, a slow and possibly halting decline of unemployment, with inflation staying close” to 2 percent.
Lockhart departed from his written remarks to praise the Spanish bank bailout agreed to over the weekend as a positive step, though he said it didn’t change his overall view that the European crisis continues to weigh on U.S. growth.
The rescue is “good news and it alleviates slightly some of the concern,” Lockhart said. “Nonetheless, there are many issues ahead the Europeans are going to face.”
Lockhart, 65, a former Georgetown University professor, has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.
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