Banking

While the official Federal Reserve Bank of Atlanta forecast calls for continued slow growth, Bank President and Chief Executive Officer Dennis Lockhart said on February 25 that he sees potential for the U.S. economy to pick up steam in coming months.

In a speech at the University of Tennessee in Knoxville, Lockhart discussed the nation's economic outlook, along with complexities surrounding the interplay of monetary policy and the nation's persistent unemployment problems. Specifically, he explored some of the factors the Fed's policymaking Federal Open Market Committee (FOMC) is considering in determining the extent and length of its quantitative easing program.

Regarding the economy, Lockhart noted encouraging signs amid the "still rather mixed" data. First, the housing market is apparently recovering, judging from home sales, prices and construction. Second, the domestic energy industry is strong. Finally, the auto industry, an important sector in the Southeast, continues to post healthy sales, he said.

Easing still appropriate for now
Those signs suggest growth could quicken if the economy avoids potholes, such as a political crisis stemming from fiscal decisions, Lockhart said. "I admit it's a qualitative assessment," he continued, "but I sense rising optimism among much of the public in terms of economic prospects. Although it's not reflected in our baseline forecast, I detect a growing conviction that the economy is beginning to emerge from a long spell of anemic performance."

Turning to monetary policy, the Atlanta Fed president discussed at some length the Federal Open Market Committee's deliberations about the extent and duration of the quantitative easing program. Quantitative easing refers to the Fed's ongoing purchases of longer-maturity Treasury and agency mortgage-backed securities. That action is meant to keep downward pressure on long-term interest rates and support financial asset prices.

The FOMC has stated its intention to continue the purchases until there is "substantial improvement in the outlook for labor markets." In his speech, Lockhart explored the complexities and challenges in precisely defining "substantial improvement." In his effort to define it, Lockhart said, he and the staff in the Atlanta Fed's research department monitor a broad set of indicators to help track the overall health of the jobs market.

Staying with easing, for now
That tracking leads Lockhart to favor continuing the asset purchasing program for now. "And given the outlook and associated risks, I am comfortable with sticking with the current approach at least into the second half of the year," he said. "All things considered, I do not think that monetary policy has yet crossed the line where the benefits of the current policy—specifically the quantitative easing element—are swamped by serious concerns over problems the policy might be creating for the longer term."

February 27, 2013