-Wouldn’t Be Surprised To See ‘Measurable’ Hurricane Effect On Q4 GDP

By Brai Odion-Esene

CHATTANOOGA, TN (MNI) – Atlanta Federal Reserve Bank President Dennis
Lockhart Thursday refused to be drawn on what the central bank’s next step will
be when its program of buying U.S. government securities ends in December,
citing the various economic views that will be at play among monetary
policymakers.

The Fed’s maturity extension program expires at the end of the year, with
the Federal Open Market Committee — the central bank’s steering group — set to
decide at its December meeting if economic conditions warrant additional asset
purchases.

“I’m not yet prepared to anticipate what the policy proposals will be and
what position I’m going to take on them,” Lockhart told reporters after a speech
to the Rotary Club of Chattanooga.

Lockhart is a voter on the FOMC this year.

When the FOMC meets on Dec. 11-12, “I think the assessment of economic
conditions are going to be ‘in the eye of the beholder’ in many respects,”
Lockhart said. “There will be different views on what we’re seeing at work.”

The Fed has two basic choices, he said — let the program, also known as
Operation Twist, expire or continue the long-term bond buying aspect of the
program “in some way.”

Operation Twist has continued to put pressure on long-term interest rates,
Lockhart said, which has been supportive of the recovery.

As for the Fed’s purchases of $40 billion a month in mortgage-backed
securities, Lockhart said it is very early to judge the efficacy of the action
or whether labor markets — even with a decreasing unemployment rate — are
experiencing substantial improvement.

Lockhart in his prepared remarks noted that the U.S. is stuck in a pattern
of moderate growth, and said getting a stronger growth rate would require action
to alleviate the significant headwinds facing the economy.

“I would have to continue to say that I am concerned about the downside
(risks), particularly the obvious things like the fiscal cliff, and would view
the balance of risks as probably biased somewhat to the downside at the moment,”
he said.

The Northeast region of the United States was battered by Hurricane Sandy
earlier this week, wrecking damage across states — particularly New York and
New Jersey.

Asked by MNI how this has changed his outlook for the economy in the near
term, Lockhart cautioned that it is a little early to assess “in any very
accurate way” what the effect of the storm will be on economic activity.

“However, I would say that given the population of the Northeast, and the
density of economic activity in the Northeast, it would not surprise me that
there is a measurable fourth quarter effect of the storm in GDP terms,” he said.

On the question of whether there is a role for monetary policy to play in
easing the storm’s impact, Lockhart replied, “not in a kind-of direct, targeted,
compensation for the storm.”

Sandy was a temporal event, he said, whose impact on the economy is likely
to pass.

On the other hand, “if a storm were to precipitate a kind of different
storyline for the whole economy, then that would be a concern,” Lockhart added.

–email: besene@mni-news.com

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