Lockhart Says Fed Faces ‘Close Call’ on Additional Easing

Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank has a tough decision on whether to add further stimulus to promote a stronger economic recovery.

“I think it is a close call, really,” Lockhart, who votes on monetary policy this year, said today in a CNBC interview from Jackson Hole, Wyoming. “I am not overly concerned with the longer-term costs of more action but at the same time I see limited benefit from more action.”

Many Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting released on Aug. 22. Chairman Ben S. Bernanke, who last month said a third asset-purchase program was an option, has an opportunity to update his policy outlook tomorrow in a speech to the Kansas City Fed’s annual Jackson Hole symposium.

If job growth were to fall persistently “well below 100,000 a month” or there were “signs of disinflation” that could lead to falling prices, “then there wouldn’t be much of a question about policy,” Lockhart said in the televised interview.

The central bank still has the ability to push interest rates lower, which might, for example, lead to mortgage rates edging down and qualifying more borrowers for loans, the Atlanta Fed president said.

Record Lows

Still, interest rates have been near record lows for years, and that hasn’t translated into a strong recovery, Lockhart said.

“When I talk to business people, they say we have never seen interest rates so low,” Lockhart said. “That doesn’t necessarily mean it is a big incentive to borrow. That is a little bit of the problem we are dealing with.”

The U.S. economy appears to be growing at about a 2 percent annual rate, he said.

“That is very modest growth,” Lockhart said. “It is not the kind of growth that is likely to bring great progress in bringing down unemployment. Inflation has been well behaved. In recent quarters, it is a little over the Fed’s target of 2 percent.”

The Standard & Poor’s 500 Index fell 0.9 percent to 1,398.08 at 10:51 a.m. in New York, while the yield on the benchmark 10-year Treasury note declined 0.03 percentage point to 1.62 percent.

Fed officials are scheduled to meet next month as slowing improvements in the job market and a stalling expansion raise the odds for more stimulus.

Bernanke has said options for the Fed include more asset purchases and cutting the interest rate the Fed pays on reserves banks keep with the central bank. The Fed has kept its benchmark interest rate near zero since 2008 and has bought $2.3 trillion in securities.

Lockhart, 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.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net;

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

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