Financial Update (Fourth Quarter 2008)

Atlanta Fed Chief Describes Current Economic Weakness

photo of Atlanta Fed President Dennis Lockhart Atlanta Fed President and Chief Executive Officer Dennis P. Lockhart said in a Nov. 7 speech that he expects substantial economic weakness to extend into 2009 and that the unemployment rate will rise further.

"Problems are now broad based. Beyond the housing sector, activity has fallen in auto manufacturing, transportation and distribution, retail trade, financial services, and some segments of commercial real estate," Lockhart said.

Moderating inflation foreseen
He added that recent events in global financial markets have added to caution among businesses and consumers. But with the recent decline of energy and commodity costs, he said the outlook for inflation has improved, and he expects "headline inflation to decline over the coming months and fall into an acceptable range below 2 percent by 2010."

Speaking at a conference in Palm Beach, Fla., Lockhart described a variety of policy actions taken by the Federal Reserve, the U.S. Treasury Department, Congress, and other countries’ central banks to alleviate ongoing financial market strains and improve the flow of credit.

Text of speech
Dennis Lockhart's biography

"In my view, these decisions were forceful responses to deterioration of the overall economy and the continuing dysfunction and volatility of the financial system. Now is not a time to be tentative," he said, adding that he's seeing some signs of improvement in financial markets.

Structural imbalances must be addressed
Lockhart called for policymakers to address structural imbalances that continue to threaten long-term economic growth. "In some respects, the current financial crisis and economic fallout can be seen as a painful adjustment made necessary by macro imbalances that are global in nature," he said. "Symptoms in this country of such imbalances have included a highly leveraged financial system, a savings shortfall in the household sector, and growing public sector deficits.

"In my view, a mere cyclical recovery that returns to the status quo ante will not be durable," Lockhart added. "The shape of that recovery must witness coming to grips with deep structural imbalances in our economic arrangements if we are to lower the potential for recurrence of instability."

November 25, 2008