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Atlanta Fed President Lockhart: 2013 Pivotal for U.S. Economy

Atlanta Fed Chair LockhartThe year 2013 will be pivotal for the nation's economy, Atlanta Fed President Dennis Lockhart said in a January 14 speech to the Rotary Club of Atlanta. Fiscal policy deliberations in Washington, D.C., will be especially critical this year, in Lockhart's view.

For now, the nation's economy remains in a slow-growth mode. Accelerating that growth depends heavily on job creation.

"And to a substantial extent," Lockhart remarked, "the pace of job creation is riding on reducing uncertainty, especially policy uncertainty. The coming months will be, in my opinion, something of a moment of truth for fiscal policymaking. The year 2013 will be a test of the country's ability to govern itself in the realm of public finances."
Fiscal policy uncertainty is part of what is keeping businesses and consumers "on the sidelines," he noted. Congress and the White House formulating a multiyear road map toward fiscal health would help remove the uncertainty restraining the economy, Lockhart said.

Economy still in "a long slog"
"Our fiscal imbalances are still building, as are the damaging effects of moving from one short‐term budget crisis to another," he stated. "Lawmakers have a short period of time before the political cycle associated with the midterm elections kicks in. These realities lend a ‘now-or-never' dimension to the year ahead."

In the year past, the economy's performance remained sluggish. Growth in gross domestic product (GDP) for 2012 is expected to clock in at about 1.8 percent when the numbers are finalized, Lockhart said.

"We remain in a long slog," he said of the continued slow recovery. Lockhart said he is expecting GDP growth of 2 to 2.5 percent for 2013, "basically more of the same."
However, progress in fiscal policy could lead to better economic performance. The Atlanta Fed president noted that many businesspeople the Reserve Bank regularly consults believe businesses and consumers have postponed spending because of uncertainty. Those contacts believe resolving the country's fiscal uncertainties would thus unlock this pent-up demand.

FOMC clarifies guidance
Turning to monetary policy, Lockhart noted that in December the Federal Open Market Committee (FOMC) clarified its guidance concerning low interest rates. The FOMC announced that it anticipates the federal funds rate will remain near zero as long as the unemployment rate exceeds 6.5 percent, and as long as projected inflation up to two years out does not exceed the Fed's long-run 2 percent goal by more than 0.5 percent.

Lockhart emphasized that these benchmarks are thresholds, not triggers for automatic action. "The 6-1/2 percent unemployment threshold—conditional on inflation being contained—was introduced to make it easier for people to assess how policy might evolve along with economic conditions," Lockhart explained. "It was not intended to signal any fundamental change in policy."

January 22, 2013


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