PALM BEACH, Fla.—Dennis P. Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, said that he expects substantial economic weakness to extend into 2009 with the unemployment rate rising some more.
"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. He added that recent events in global financial markets have contributed 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 by the Federal Reserve, the U.S. Treasury Department, Congress, and foreign governments that have been taken to alleviate ongoing financial market strains and improve the flow of credit. "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.
Lockhart called for policymakers to address structural imbalances that continue to threaten the durability of growth over the long term. "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. 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. 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," he said.
A transcript of Lockhart's remarks is available.
The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which encompasses Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee. As part of the nation's central banking system, the Atlanta Fed participates in setting national monetary policy, supervises numerous commercial banks and provides a variety of financial services to depository institutions and the U.S. government.