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Fed’s Lockhart Says Worsening Europe Crisis Raises Risk

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June 7 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said the European debt crisis has worsened in the past six weeks, raising the risk the region’s slump will hurt U.S. growth.

“I am giving more weight and higher probability to a negative influence on our economy coming from Europe than I did as recently as the last FOMC meeting in late April,” Lockhart said in a speech in Dallas, Georgia, referring to the policy-making Federal Open Market Committee. His prepared remarks on the U.S. economy repeated his speech from yesterday in Fort Lauderdale, Florida.

Lockhart, who has a vote on the FOMC this year, reiterated his view that policy makers need to take further action to stimulate the economy if it becomes clear growth is slowing. Boston Fed President Eric Rosengren said today the Fed has “some flexibility” for more easing, while Fed Vice Chairman Janet Yellen said yesterday that “stalled” improvement in the labor market and weak financial conditions could call for more accommodation.

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.

Balance Sheet

Later, talking to reporters, Lockhart was asked when the Fed might use its balance sheet or communications to boost economic growth. “I don’t think conditions call for them at the moment. If we saw further deterioration, they would have to be on the table,” Lockhart responded.

Asked about when further policy easing might come into play, Lockhart said: “I would expect to see general indicators of a deteriorating economic situation that takes me off my baseline forecast.” That could include a sharp increase in unemployment, a trend toward deflation or generally stressed economic conditions, the Atlanta Fed president said.

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 in Washington at cwellisz@bloomberg.net

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