Atlanta Fed Chief Sees Slow Recovery, Real Estate Challenges in 2010
The economy is on the mend, Federal Reserve Bank of Atlanta President and Chief Executive Officer Dennis Lockhart said in a recent speech. However, several factors could impede the strength of the economy's emergence from recession, chief among them ongoing problems in the commercial real estate (CRE) sector and high unemployment.
Speaking to the Downtown Atlanta Rotary in mid-January, Lockhart said he foresees the recent economic expansion to continue, albeit at a slow pace. He added his concern that economic growth may not be strong enough to result in increased hiring. Still, he said, "the economy is moving ahead toward a necessary transition from government-provided life support to private sector–propelled consumer and investment activity."
Weighing the risks to recovery
Lockhart singled out the ripple effect of CRE's woes to other parts of the economy. "The risk associated with commercial real estate is linked to banks, small business credit, jobs, and ultimately consumption," he said. Lockhart added that while overall commercial real estate debt in the financial system is smaller than residential, its burden falls disproportionately on small and regional banks. "Smaller banks are a significant source of credit for small businesses, and in most recoveries we look to small businesses to generate a significant number of jobs," Lockhart said.
Winding down the emergency measures
As the economy embarks on a recovery, Lockhart said the Fed is concurrently withdrawing some of the steps it took to preserve the financial system when the crisis struck. "A bit like Goldilocks' porridge, the exit or unwinding process needs to be—in my view—not too fast, not too slow, but just right," he said. He added that he favors maintaining the low fed funds rate for an indefinite period, "until recovery has shown momentum that is based on private business and consumer demand, job growth is established or at least imminent, and the downside risks appear to be safely navigable."
January 27, 2010