Financial Update (Second Quarter 2008)

Atlanta Fed Chief: Too Soon to Breathe Easy

Atlanta Fed President Dennis LockhartAtlanta Fed President Dennis Lockhart said in a June 2 speech that the last few weeks in the economy had the feel of "coming up for air." He cautioned, however, that it is too early to "breathe easy."

Challenges on numerous fronts
The national economy has faced continual challenges since the emergence and spread of financial turmoil beginning last August, Lockhart noted. Among those challenges, he listed financial market illiquidity and significant losses by banks and financial institutions, a home building slowdown and falling house prices, the rapid onset of general economic weakness, and inflation pressures stemming partly from rising energy prices.

Lockhart characterized the current economy as "growing slowly, poised for gradual recovery, but carrying real risks that could subvert the story."

Text of speech
Dennis Lockhart biography
Recent Atlanta Fed data on the Southeast economy
Audio icon Podcast of speech (MP3 20:26)

Strengthening economy anticipated, but risks remain
Looking forward, Lockhart expects forthcoming information to reveal a weak first half of 2008 followed by some improvement in the second half as the challenges he listed gradually diminish. Nevertheless, he said, the nation's economic outlook remains uncertain mainly because of three main risks: renewed financial instability, an oil price shock in the face of growing global demand, and a long and even steeper decline in house prices.

In addition to those immediate concerns, Lockhart discussed "persistent structural imbalances that present serious risks to our nation's long-term and continuing economic well-being," including structural trade deficits, foreign petroleum dependency, and fiscal deficits. "These concerns deserve high rank on the country's economic agenda," he said.

June 25, 2008