Atlanta Fed President Lockhart: Accommodative Monetary Policy Still Needed

Atlanta Fed President LockhartUnusual winter weather is likely to account for the economy's anticipated weak performance in the first quarter, said Atlanta Fed President Dennis Lockhart in a speech to the Miami Chamber of Commerce on April 2.

Anecdotal accounts from the Atlanta Fed's business contacts throughout the Southeast support this view. "We heard accounts of weather-related losses in production, retail sales, shipment time, work days on construction sites, and visits to hotels and restaurants," Lockhart said.

Although a predicted first-quarter slowdown naturally raises concerns that the recovery has lost steam, he expects gross domestic product (GDP) growth to pick up in the second quarter of the year and beyond. Stronger growth, in turn, should "help to absorb underutilized resources in the economy, especially labor resources," he noted.

Accommodative policy still needed
Now that the tapering of the Fed's asset purchases—often called quantitative easing—is well under way, the focus has jumped to the question of when the Federal Open Market Committee (FOMC) will begin to raise interest rates. Through forward guidance, the FOMC has said it plans to keep the federal funds rates low for some time. "I think this accommodative policy is right for the current circumstances," Lockhart said. "My view is that sustained GDP growth in the neighborhood of 3 percent will generate sufficient movement toward the FOMC's objectives to justify a gradual liftoff in policy rates sometime in the latter half of 2015," he said.

Measuring progress on employment, inflation goals
Lockhart devoted the remainder of his remarks to describing how he measures progress against the Fed's dual objectives: full employment and price stability. Under ideal circumstances, traditional indicators like the unemployment rate and changes in the personal consumption expenditures price index might be sufficient. "But in the complicated environment that emerged in the wake of the financial crisis and the Great Recession, a more comprehensive approach to assessing economic conditions is warranted," he said.

Lockhart refers to a "dashboard" of indicators to help gauge economic growth. Among them are:

  • Broader measures of unemployment, such as the number of marginally attached workers—people available and wanting to work but not currently seeking a job—and part-time workers who would prefer to work full-time
  • Changes in labor market turnover, namely increases in hiring and the number of employees who leave their jobs voluntarily, widely seen as signifying confidence in the job market
  • Wage growth, a crucial link between labor market growth and inflation.

While these and other indicators show signs of improvement, the FOMC is still short of its two objectives, Lockhart said. As a result, he believes that the Fed's accommodative monetary policy stance is right for the current circumstances.

April 23, 2014