–Will Take A Long Time To See Improvement In Employment Situation

By Brai Odion-Esene

JOHNSON CITY, Tn. (MNI) – Atlanta Federal Reserve Bank President
Dennis Lockhart Friday would not rule out a possible decision by the
Federal Reserve to expand its balance sheet, but said any action would
be dictated by the evolution of the economy.

In his prepared remarks for a speech at East Tennessee State
University, Lockhart had said the decision by the FOMC in August to
reinvest principal payments received from its MBS holdings into U.S.
Treasuries does not necessarily herald the beginning of an expansion in
the Fed’s balance sheet.

Asked by reporters later whether further expansion of Fed’s balance
sheet is something that needs to be considered in order to support the
economy, Lockhart said he does not have a view on that at this time.

“I think we’ll just have to watch the evolution of the economy and
the conditions that develop,” he said. “I would not rule it out as a
response to the weaker conditions that I am forecasting, so I keep an
open mind on that.”

Any move to expand the Fed’s balance sheet, he said, because it
necessarily brings with it a future requirement to craft an exit
strategy, “is a matter that has to be taken very seriously.”

Lockhart said despite recent claims to the contrary, he does not
see divisions within the FOMC, rather members bring “healthy
perspectives” to meetings and sometimes “very ardently argued
positions.”

“But we tend to come to a working consensus,” he said.

Taking questions from the audience following his prepared remarks,
Lockhart said he believes the unemployment rate in the U.S.,
realistically, will come down “slowly.”

In the longer term, a realistic full employment target rate would
be in the range of 5.5% to 6%, he said.

“And I don’t see an easy return to that number in the near term,”
Lockhart added, “I think it’s going to take some time.”

Lockhart argued to reporters that the employment levels seen before
the recession where indicative of “a very leverage-funded bubble and
expansion that would be unwise to duplicate.”

He went to say that some of the employment that existed then was in
sectors — such as construction and some areas of manufacturing — “that
at least in the intermediate term, the medium term, are unlikely to come
back to that same level.”

Lockhart refused to provide a hard number for his growth, as well
as inflation outlook, for the rest of 2010. He did say that he expects
GDP to improve to above 2% by the end of the year.

He also said the natural growth potential of the U.S. “remains
strong.”

Lockhart did agree that uncertainty is a major factor feeding the
caution of businesses and consumers, especially as it relates to the
future regulatory and fiscal environment.

On the U.S. fiscal health, Lockhart said there is a “strong
aversion” within the Fed towards the notion of monetizing the Federal
debt and called on both the administration and Congress to come up with
a “game plan.”

“The world will calm down,” he said, once the U.S. comes up with a
credible deficit reduction plan.

** Market News International **

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