Financial Update (First Quarter 2009)

Atlanta Fed President Foresees Modest Recovery Starting in Second Half of 2009

photo of Atlanta Fed Chairman Dennis Lockhart

While the nation's economy probably won't rebound strongly in the next few quarters, some signs indicate that a modest recovery could start in the second half of 2009, said Atlanta Fed President Dennis P. Lockhart.

Speaking at a Birmingham, Ala., Regional Chamber of Commerce business outlook conference on Feb. 19, Lockhart described a sharp reduction in consumer spending and said a drop in business activity in late 2008 and early 2009 has battered the U.S. labor market. He noted that in the past 12 months the economy has lost a net 3.5 million jobs, with about half those losses in the past three months.

Glimmers on the '09 horizon
Looking ahead, Lockhart said he expects weak credit markets, a glut of houses, and low business and consumer confidence to restrain growth for the next several quarters. But he anticipates some hopeful signs as the year progresses, including a reduction of excess business inventories, lower mortgage interest rates helping housing markets on the margin—January sales numbers and refinancing activity were up, he noted—the fall of energy prices and the potential for improving consumer confidence.

Text of speech

Lockhart also cited the effect of monetary and fiscal policy. "Responding to the scope and severity of our economic ills, policymakers have taken and will soon implement unprecedented measures to restore financial stability and economic growth," he said. "In my view, the diagnosis is substantially correct and the actions targeted on discrete aspects of the overall problem constitute an appropriately comprehensive approach."

Applying the appropriate policy measures is key
Lockhart said he judged policy using four criteria:

  • Is the problem correctly diagnosed?
  • Is the response to each dimension of the problem sufficiently sized?
  • Is the response timely?
  • And, is the specific policy reversible when required or appropriate?

"I believe the composite policy approach is correct in focus and intent, and now the devil is largely in the details and implementation," he said. "I am confident policymakers across the various relevant arms of government understand the importance of moving ahead as quickly as possible to provide detailed rules of the road."


February 26, 2009