By Yali N’Diaye

SARASOTA, Florida (MNI) – Affirming his support for the Federal
Reserve’s current monetary policy stance, Atlanta Federal Reserve Bank
President Dennis Lockhart Tuesday said he is prepared to be “somewhat
patient” and see how the situation evolves in what he referred to as a
“vigilant restraint” posture.

In prepared remarks at a New College of Florida’s event
co-presented by the Global Interdependence Center, Lockhart added that
he does not see the current “accommodative policy compromising the
objective of 2% inflation.”

In fact, he said, “I think the current policy stance is appropriate
for an outlook of steady, moderate growth with gradual employment
gains.”

Recent economic indicators have been “positive on balance,” with
the most obvious signs of improvement coming from the labor market,
Lockhart said. In addition, “we’re starting to see the beginnings of
credit expansion.”

Lockhart, who will be voting on the Fed’s policymaking Federal Open
Market Committee this year, pointed out better household income growth
as well as positive signs from the business sector.

Still, he has not revised up his growth forecasts, reaffirming his
expectation of a 2.5% to 3% GDP growth this year.

So overall, Lockhart is “pretty confident” that the recent economic
data are a sign the “economy is gaining traction” and that growth this
year will be “noticeably” stronger than in 2011.

This view, he said, might seem at odds with the January 24 Federal
Open Market Committee statement stressing that economic conditions
warrant exceptionally low interest rates “through late 2014.” But it is
not, he said.

While recent data are encouraging, “we haven’t seen enough
sustained improvement to be sure it will last.”

There are still adjustments that will occur, he said, while many
forecasters expect house values “to remain flat or even decline in the
next several years.”

More broadly, Lockhart said the expected return to full capacity
will be “slow and arduous.”

So overall, he supported the January FOMC statement said “continue
to support that statement.”

He cautioned, however, that the 2014 forward guidance is “a
conditional statement.”

“It is not a commitment to maintain a near-zero federal funds rate
without consideration of how conditions on the ground are evolving,” he
said.

What it means, instead, is that “the Fed’s policy rate will likely
stay at rock bottom at least through 2014 if the economic story goes as
projected. If it doesn’t, the time horizon could change.”

As for the 2% inflation target, it is “an aid to understanding how
the FOMC will react to developments in the economy within an overarching
approach that can be called ‘flexible inflation targeting,” he said.

** Market News International **

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