–Repeats; Accommodative Monetary Policy Appropriate At Present
–Long Way To Go; Premature To Assume Accommodatve Pol Reversal Imminent
–Will Be Looking Out For Improvement In Employment Markets
By Brai Odion-Esene
WASHINGTON (MNI) – Atlanta Federal Reserve Bank President Dennis
Lockhart Wednesday warned of the possibility that the central bank could
face circumstances that warrant the start of monetary policy tightening
“well before” the rate of unemployment is at a satisfactory level.
Labor market trends appear to be moving in the right direction,
Lockhart said, but added it’s quite possible the recovery could be well
advanced before any significant reduction of unemployment materializes.
“It’s also quite possible circumstances justifying the start of a
cycle of policy tightening will develop well before the unemployment
rate has found a satisfactory level,” he said.
In remarks prepared for a business leaders luncheon in Hartford,
Connecticut, Lockhart repeated his opinion that a highly accommodative
monetary policy is appropriate at present, cautioning that as the U.S.
still has a long way to go, “I believe it is premature to assume an
imminent reversal of the Fed’s accommodative policy.”
Speculation has been rife in the market about the exact meaning of
“extended period” from the Federal Open Market Committee’s policy
statement, but Lockhart said he believes it is not appropriate to talk
in terms of a specific timeframe or number of meetings.
“As long as inflation remains subdued and inflation expectations
anchored, a key factor for me is improvement of employment markets,” he
Most economists expected Friday’s U.S. nonfarm payrolls report to
show an increase in employment for March of about 200,000 jobs, and
Lockhart said, “Going forward, I will be looking for signs that
employment gains are likely to repeat, accumulate and, once achieved,
are likely to be durable.”
He said such signs would include an indication that job indication
is improving, a decline in the measured rate of underemployment, and a
string of employment gains large enough to “appreciably’ move the
unemployment rate down over time.
Lockhart blamed the current slow pace of job gains on the slow pace
of job creation, as opposed to high layoff rates. “I view unemployment
as a daunting economic challenge — and very likely a dominant political
issue — of the period ahead,” he said, but added, “Despite the weak
state of labor markets, there are signs that the worst may be behind
Casting his eye over the overall U.S. economy, he noted the strong
5.6% growth rate seen in the fourth quarter of last year as proof of
recovery, but cautioned that growth of that strength will not repeat
itself in the first quarter of this year.
“For the first quarter, I expect a more moderate growth rate, a
little below 3 percent,” Lockhart said.
Improvements in consumer and business spending are helping to
offset softer housing and commercial construction, Lockhart said, but
warned that continued stabilization of the housing sector — especially
home prices — “is likely a precondition for sustained economic
As a result, the U.S. economy remains in a transitional phase from
a period that depended on support of public sector programs to a period
of resumed growth based on private spending, he said.
** Market News International Washington Bureau: 202-371-2121 **