WASHINGTON (MNI) – Atlanta Federal Reserve Bank President Dennis
Lockhart Thursday said it is a “close call” on whether the sluggish U.S.
economic recovery is in need of more support from the Fed, but said he
believes additional stimulus would have a positive, albeit limited,
effect.

“I continue to believe that we could see some benefit — but
limited benefit — for limited risk, and I think manageable costs over
the longer term,” Lockhart said in an interview on CNBC.

“I’m not overly concerned with the longer term costs of more action
but at the same time I see limited benefit from more action,” he added.

Lockhart is a voter on the Fed’s policymaking Federal Open Market
Committee this year, and he was asked if conditions bad enough to
warrant a further easing of monetary conditions by the Fed.

“I think it’s a close call,” Lockhart said. “If we were to see a
deterioration from this point — let’s say a persistence of job-growth
numbers that were well below 100,000 a month … or if we were to see
signs of disinflation that could signal the onset of deflation, then
there wouldn’t be much of a question about policy.”

As for his assessment of economic conditions, Lockhart said this is
“a really good time to take stock” with a longer term perspective.

The economy has been growing at a rate of around 2% since the
recovery began, he said, a pace that Lockhart described as “modest,” and
“not the kind of growth that’s likely to bring great progress in
bringing down unemployment.”

Meanwhile, inflation has been “well behaved,” he said.

The issue facing the Fed now is how much will be gained from the
central bank doing more, and does this outweigh both the short and
longer term costs, Lockhart said.

He was unequivocal in his belief that the Fed can still drive
interest rates lower, and singled out mortgage rates in particular.

“Mortgage rates could edge down enough to qualify some more
borrowers,” he said. “I do think further stimulus — if we were to put
that in place — would have some positive effect.”

With regard to the costs of additional monetary action by the Fed,
Lockhart described those as “speculative.”

“We don’t really know what the costs would be over the longer
term,” he said.

Commenting on what effect forward guidance by the FOMC on the
future path of the fed funds has had, Lockhart said it has kept interest
rates low, although that does not necessarily translated into a big
incentive to borrow — which is part of the problem facing the Fed.

“Nonetheless, interest rates are at a very low level and will
remain there for a while,” he said.

European Central Bank President Mario Draghi will be skipping the
upcoming two-day Kansas City Fed economic symposium in Jackson Hole,
Wyoming, citing a heavy workload.

Lockhart, speaking from Jackson Hole, said he is taking Draghi’s
non-attendance as a signal that “all hands are on deck in Europe.”

He said the spillovers to the U.S. economy from the eurozone crisis
has not been severe, but it has contributed to the level of uncertainty.

“The fact that they would actually stay home in August I think is a
good thing,” Lockhart said.

** MNI Washington Bureau: 202-371-2121 **

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