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Atlanta Fed President Lockhart: Tapering Decision "On the Table"

Atlanta Fed Pres. LockhartThe Federal Reserve's policymaking body, the Federal Open Market Committee (FOMC), could soon consider whether to taper its bond-buying program, said Atlanta Fed President and CEO Dennis Lockhart.

In a December 5 speech before the Broward Workshop in Fort Lauderdale, Florida, Lockhart shared how he is thinking about the winding down of the Fed's asset purchases, popularly called quantitative easing—QE for short. Since launching a third round of QE in September 2012, the U.S. central bank has purchased $85 billion per month of longer-term Treasury securities and agency mortgage-backed securities. "It is appropriate in coming meetings to put a tapering decision on the table as long as the resulting overall posture of policy preserves a high degree of accommodation," he said.

Economy has improved, remains short of victory
Lockhart also discussed current economic conditions and the outlook for 2014. Despite significant improvement since the recession ended in 2009, economic conditions are "short of what you'd call victory," he said. Positive developments include steady—albeit slow—economic growth, continued improvements in labor markets, and gains in key sectors such as housing. The positives are offset somewhat by persistent areas of weakness, such as the decline in labor force participation and too-low inflation. Despite some mixed signals on the economy, "it's my judgment that the recent incoming data are, on net, positive," he said.

The FOMC will likely consider a decision to taper asset purchases in coming meetings, Lockhart said, adding that the economic outlook "justifies consideration of a move." Economic growth should firm up in 2014, along with continued gradual improvement in labor markets. Meanwhile, he expects inflation to move closer to the Committee's 2 percent goal.

Lockhart calls for "as much clarity" as possible
As the decision approaches, Lockhart will "be looking for positive evidence of momentum as well as the absence or retreat of factors that could restrain or even torpedo progress." Those elements include continued employment gains, a strengthening of consumer spending and other key components of GDP, and a lessening of fiscal drag. Inflation trends, particularly signs of disinflation, will be on his radar along with potential economic shocks that might loom on the horizon. "There are always risks, but over the past year, I believe many of the most worrisome sources of risk have retreated," he said.

When the time comes to taper, Lockhart supports providing information about the total size of remaining purchases or a timetable for winding down the program. "I favor providing the public as much clarity and certainty as possible about how the change will be executed," he said.

December 19, 2013


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