By Steven K. Beckner

(MNI) – Atlanta Federal Reserve Bank President Dennis Lockhart
described the Fed’s aggressive monetary easing measures last week as a
“forceful attempt” to stimulate the economy and reduce unemployment, but
indicated Friday he is prepared to support even “more action” if the
economy doesn’t improve.

Lockhart, a voting member of the Fed’s policymaking Federal Open
Market Committee, said “additional asset purchases” are one option.

After expressing some ambivalence about additional monetary
stimulus in recent months, Lockhart ended up voting with the 11-1
majority last Thursday when the FOMC announced it would buy $40 billion
per month of mortgage backed securities until the outlook for the labor
market improves “substantially.

The FOMC also extended its “forward guidance” on the path of the
federal funds rate to “at least through mid-2015.” And it said it
“expects that a highly accommodative stance of monetary policy will
remain appropriate for a considerable time after the economic recovery
strengthens.”

“The necessary natural healing from the large disruption of the
financial crisis will certainly be supported, and likely accelerated, by
the stance of policy with the new features introduced last week,” he
said.

Lockhart said he felt “a call to action” after August data showed
the economy was slowing from an already “anemic” pace. And he said he
came to the conclusion that weak labor market conditions can be
“ameliorated” by monetary policy, despite disagreements among his
colleagues about the extent to which joblessness is cyclical or
structural.

Lockhart described the FOMC’s two-pronged stimulus campaign as “a
preventative” — aimed at improving economic prospects “by reducing the
potential downside apparent in the incoming data.”

But he said he expects the policies to “do more than just prevent
backsliding.”

To be effective, he said the new measures “must lower interest
rates, raise asset prices, and reduce policy uncertainty.”

“These intermediate results must increase confidence of consumers
and businesses,” he continued. “That must lead to a heightened
inclination to spend, invest, and take risk. And these actions must
result in more economic activity, rising demand, and ultimately hiring.”

Lockhart called the MBS purchases “well-timed” with recent housing
market improvements, echoing comments made in a news conference Thursday
on the sidelines of a Kansas City Fed jobs forum.

“By maintaining downward pressure on mortgage rates and by
encouraging growth of mortgage-financed purchase activity, sales
activity … should accelerate, and upward pressure on home prices
should contribute to consumer confidence,” he said. “The policy action
should have positive sector-specific effects with spillover to general
conditions.”

“An improving housing sector will help calm one headwind that has
impeded a stronger recovery,” he added.

Lockhart said “MBS purchases will continue until we see a better
employment situation.”

“If we do not see improvement, more action may be taken,” he said
adding, “I hope the resolve of the FOMC is clear.”

To reinforce the point, he said the FOMC statement and Chairman Ben
Bernanke’s comments in his post-FOMC news conference “emphasized that
further policy actions, possibly in the form of additional asset
purchases, will be decided on the basis of the extent of improvement in
the outlook for labor market conditions over the coming months.”

Lockhart said “the outlook for inflation will also be a critical
consideration,” but he had earlier observed that while inflation has
“hewed closely” to the Fed’s 2% target, “the record of employment gains
has been less comfortable.”

He said he “couldn’t entirely rule out the weakening of other
headwinds,” such as the fiscal cliff and the European debt crisis. If
those headwinds dissipate, he said “the outlook could be considerably
more favorable in a few months time.”

** MNI **

[TOPICS: M$U$$$,MFU$$$,MGU$$$,M$$CR$,MT$$$$,MMUFE$,M$$BR$]