Atlanta Fed Chief: Monetary Policy Normalizing, Job Growth Encouraging

Dennis LockhartSpeaking in Dubai recently, Atlanta Fed President Dennis Lockhart said a "gradual normalization of monetary policy" has begun. While predicting economic growth will speed up this quarter, Lockhart sounded a note of caution about the ongoing yet very slow recovery of the labor market.

The process of moving monetary policy back to more normal footing, Lockhart said, started last December when the Federal Open Market Committee (FOMC) began reducing the Fed's monthly purchases of assets from $85 billion a month to the current level of $45 billion. He added that he expects the large-scale asset purchases, or quantitative easing, to end later this year.

"Based on my outlook, I think that conditions in the U.S. economy will justify beginning the process of raising rates in the latter half of 2015," Lockhart said. "Once rates begin to rise, I expect the process to normalization of interest rates to be gradual."

Accelerating U.S. growth expected
In the speech, Lockhart shared his views on the condition of and outlook for the global and U.S. economies. The Atlanta Fed chief also discussed the ways that U.S. monetary policy affects the worldwide economy.

Lockhart's forecast calls for growth in the domestic economy to accelerate starting in the current quarter to an annualized rate of about 3 percent. He will be watching for a stronger rate of industrial production growth, improved demand for capital goods, and a step-up in consumer spending.

"I expect stronger growth will help absorb underutilized resources in the economy, especially labor resources," Lockhart said.

Jobs continue ticking up, but...
He noted that the latest employment report from the U.S. Bureau of Labor Statistics showed an encouraging trend in job creation, with the unemployment rate falling from 6.7 percent to 6.3 percent. However, during April the percentage of people participating in the labor force—working or looking for a job—fell again to nearly a 30–year low.

"In simple terms, last month, the United States apparently added jobs but lost workers," Lockhart concluded. "So I am hesitant to take on board this decline in the unemployment rate as indisputable evidence of progress toward full employment."

May 20, 2014