An Eventful Decade: Atlanta Fed President Dennis Lockhart Looks Back at His Tenure

Tom Heintjes: Hi, and thanks for joining us for another episode of the Economy Matters podcast. I'm Tom Heintjes, managing editor of the Atlanta Fed's Economy Matters magazine. Today, it's our privilege to have Dennis Lockhart, president and CEO of the Atlanta Fed, in the studio with us. Thanks for joining us, Dennis.

Dennis Lockhart: Thank you, Tom.

Heintjes: I should set the stage for our conversation today by telling listeners that Dennis is stepping down as president of the Atlanta Fed at the end of February, so it's a time of very mixed emotions for us here at the Bank. Dennis became the Atlanta Fed's 14th president on March 1, 2007, and he has led the Bank through a very eventful and interesting decade. And he's agreed to talk with us today about his tenure at the helm of the Atlanta Fed.

Dennis, first let's address the reason behind your stepping down.

Lockhart: Well, basically my term ends on February 28. There are internal rules about how long someone can serve, and I get to the end of the allowed period for a president to serve in that position.

Heintjes: Dennis, what initially appealed to you about the opportunity to become a policymaker?

Lockhart: When I was first interviewing for the position, and I was asked the question "Why do you want this job?," my answer was, "Public service for its own sake." I had—for many, many years, in thinking about the arc of my career—wanted to have some period of public service, and so this was my opportunity to do that. Economic policy, I guess you'd say, was closest to my experience as a banker, my experience in the private sector. And so I really wanted the opportunity to, and the experience of, being a policymaker in the economic sphere.

Heintjes: You came to the Fed after years spent in the world of finance and then academia, giving you a really special skill set entering a policymaking institution. But even so, were there any aspects of leading the Bank and becoming a policymaker that might be called on-the-job training?

Lockhart: Well, yes. I think the most challenging new experience, you might say, when someone becomes a policymaker late in his or her career, is communicating with the public, either directly or through the press. So learning to be very measured and judicious in my choice of words, and learning to communicate accurately, and having my statements backed up by good fact-checking and empirical analysis in many cases—that certainly was something that I had not experienced before, and I had to learn when I came on to this job.

Heintjes: As I noted just a few minutes ago, you joined the Atlanta Fed in March 2007, and at that time the economy had been humming along quite nicely for some time. But it wasn't too long after that that the economic situation became really…interesting. Can you describe that period when you were fairly new in your role as Bank president and the economy was really on the precipice?

Lockhart: I remember it very well, because it was my first year in the role. I actually chose the start date of March 1, 2007, in order to qualify to attend a Federal Open Market Committee [FOMC] meeting that I believe was [March] 22–the 21st or 22nd–and internal rules required three weeks on the job before you could attend an FOMC meeting. The tone of that first meeting was very sanguine, very positive about the economy. The second meeting was much the same. It wasn't until the summer of 2007 when we began to see some signs that were worrisome, in that case particularly in the subprime mortgage-backed securities markets.

And then, rather rapidly from the summer of 2007, the crisis began to develop, and it was fast moving, it was unpredictable, and to some extent my colleagues and I thought it was containable—and it proved not to be so containable. So it was a really fast ride there for many months into 2008, and even into 2009.

Heintjes: Dennis, you really had a front-row seat to the financial crisis, as the Fed played a key role in pulling the economy back from the brink. In some ways it had to be a harrowing time to be a policymaker. When you look back on that period, what memories or impressions are most vivid?

Lockhart: Certainly the meetings in which I was in the room with Ben Bernanke, who was leading the Fed at that time, and all of my colleagues on the Federal Open Market Committee, as well as some ad hoc meetings that had not earlier been scheduled but had to be scheduled because of the nature of the emergency. Those meetings were tense, in certain respects. They were meetings in which it was clear that the Committee was dealing with a great deal of uncertainty and trying to devise measures to address what was happening. And they were critical meetings and critical deliberations of the Federal Open Market Committee.

I remember one particularly because it was called with short notice, and it was a secret meeting until the minutes were later published. That was Martin Luther King weekend of 2008, in which the Committee chose to drop the federal funds rate, the policy rate, by a further 75 basis points. Normally we operate with increments of a quarter of a percent, so it was quite unusual to drop by 75 basis points in one meeting. I remember that one particularly well. It was not a face-to-face meeting, but it was done by remote media and brought home the point we're dealing with something serious here.

By the end of 2008, after all of our normal meetings and one or two special meetings to deal with developments—either in financial institutions, or with financial institutions, or in the markets—the policy rate had gotten to zero. So it moved down very, very rapidly in a short period of time.

Heintjes: You mentioned the FOMC cut the fed funds rate effectively to zero in 2008, but the recovery remained slow and somewhat inconsistent, and that's when the extraordinary measures were added to the FOMC's toolkit to stimulate growth. Can you share how you viewed things like quantitative easing, and why you supported these measures? And candidly, do you think they worked?

Lockhart: Well, yes. When we got the policy rate down to what amounted to zero and felt that more stimulus needed to be applied to the economy in order to basically shock it out of its paralysis, in some respects, and out of the deep recession that developed after the crisis, I obviously witnessed the resourcefulness—particularly Chairman Ben Bernanke, who was extremely well versed in not only the history of the Great Depression but all of the academic discussion of what you do in various circumstances as a central bank. This was literature that I was not particularly familiar with, so when he proposed quantitative easing, I needed an education to understand what this was all about.

There are nuances around quantitative easing versus credit easing, and quantitative versus qualitative, so there are variations on this theme. But the basic idea—which, after I understood what he was talking about—seemed to be as good an approach as we could come up with, was to create new money in the form of bank reserves and buy securities to put pressure on long-term rates. The idea at the time, of course, was to keep rates low—particularly the long rates, the longer-term rates, longer maturity rates that really do affect things like the housing market, affect the automobile industry with car loans, affect investments of corporations and households that tend to borrow on a longer-maturity basis.

Did it work? It's very difficult to prove that point in a cause-and-effect way because as soon as we undertook the policy, other aspects of economic reality would intermingle with our policy, as you would expect. And to kind of deconstruct all that and say, "This exactly caused that, or this caused that exactly" is not possible. But with the benefit of some hindsight, three rounds of quantitative easing, plus the policy rate at zero, has nurtured a slow recovery, which now I would say is a satisfactory outcome. But it took quite a while to get there.

Heintjes: So you would characterize the economy as having returned to what we would consider normal by historical standards?

Lockhart: Certainly you hear that expression a lot—"return to normal"—and you hear the expression often in an aspirational sense: "I would like things to return to normal." I'm a little wary of the term "normal" because that suggests that the economic conditions have returned to what they were in 2007 or 2006. That is not the case at all. So I resist a literal use of the expression "return to normal." We have achieved a cyclical recovery, and many of the indicators of economic health are at levels or at rates that are similar to what they were before the crisis and before the recession. But at the same time, the economy has moved on. You never go back in time to conditions that existed sometime in the past.

There have been demographic trends, for example. There have been trends related to important aspects of the economy—like labor market dynamism, or business sector dynamism, and so forth—that have evolved over that time and taken us, in my opinion, to a new place. And that new place is the result of a cyclical recovery, but the playout of certain secular trends that may or may not be structural in nature. So to me the word "normal" is more of a code word for a set of desired conditions, and those desired conditions are indicated first by the dual mandate of the Federal Reserve, and that is low and stable prices—inflation under control—and full employment. We are very close to achieving those two objectives.

So that—and the sustainability of growth in the economy and other ways of describing a healthy and, as I said, sustainable picture—that to me is what "normal" means, and we have returned to that, but it's a different economy than 2007.

Heintjes: Sure. Well, I don't want to ask you to take out a crystal ball, but I do want to ask you how you feel our economy is positioned for the future.

Lockhart: I think the economy is right now quite well positioned for continuity of the last few years, and that would be indicated by growth—GDP growth, gross domestic product growth—in the neighborhood of 2 percent, inflation being low, and gradually inching up to our target, or something close to our target, of 2 percent, and employment remaining quite healthy and continuing to improve incrementally, even though we are in the conditions that are very close to full employment.

So I think for that future that I just spelled out, we are well positioned. I am less sure of some of the stated promises of public officials that we will see a spurt in growth to the 3 to 4 percent range or even higher. I don't want to naysay it—I would certainly like to see it develop if it were consistent with the goals of the Federal Reserve in inflation and employment—but I'm just less sure that it's possible.

Heintjes: Well, Dennis, let me change gears and ask you—over the course of the decade that you've been at the Atlanta Fed, how have your views of policymaking changed in that time?

Lockhart: Well, it's been, first of all, an extraordinary period of economic history. Policymaking during a financial crisis is quite different than policymaking in a slow but gradual recovery. So I have seen quite different circumstances, which call for different…let's just say kinds of responses, or a different order of immediacy for action. During the financial crisis, and for that matter in the recession, when the risk of really seeing the economy unravel further and do something as damaging as the Great Depression—certainly the need for decisive action and to move at the right time was much more intense than during seven or eight years of recovery, where you had a little bit more freedom of action to deliberate, to consider, to in some cases delay to see how things played out, and so forth. So I would make that distinction, and the distinction that I've experienced both. And they are two different sets of circumstances for policymaking.

I guess before I got into a policymaking role, I just could not—having not been exposed or having no experience—have appreciated the constant uncertainty in which policymaking is being made. It's how policymaking is taking place. It's always very difficult, in real time, to know exactly where the economy is. You have a lot of different data that you are following, and sometimes the data paint conflicting pictures, and sometimes the data—the methodology under the data—may be not totally up to modern standards, or for the sake of consistency the data collectors have been doing it the same way for a long time. There are a lot of things that come into play that are helpful to know when you are trying to weigh what this means versus what that means, and I certainly didn't appreciate that until I got into the role.

So at the end of the day, it's almost unavoidable that policymaking requires some judgment and some weighing, and rational people can differ on what the weight should be on this or that particular economic piece of data. I think now I appreciate, but maybe it took me a while to appreciate, the importance of anchoring in one way or another. The Federal Reserve and the Federal Open Market Committee are anchored in our dual mandate, so everything proves back to the objectives that Congress has given us, and that is low and stable prices or low inflation rate, which we define at 2 percent, and full employment. So having those anchors helps you kind of navigate as you're going along, because you can always compare—to some extent, compare—where you think the economy is relative to those anchors.

Heintjes: Right. because you feel like you have a North Star to guide you.

Lockhart: Exactly.

Heintjes: So you actually touched on my next question: As a policymaker, if you knew in 2007 what you know now in 2016, would you have done anything differently, and what would that be?

Lockhart: As I look back on it, and as I've said just in the answer to the previous question, there is a lot about the context of policymaking and the—like it or not—the reality that you're dealing in an environment of uncertainty constantly, that I probably could have appreciated more deeply had I taken the counsel of people who had been in this role in the Federal Reserve or in the role of policymaking that's similar in other fields, for a long time.

Now, with the benefit of hindsight, I know what questions to ask. Then I did not know exactly what question to ask. It might have been something as simple as saying to Ben Bernanke or [former Fed governor] Don Kohn, who had been around for a while, "What about policymaking have you learned? What wisdom have you developed over the years to help guide someone who is new to it? And I'm not asking a technical question, I'm asking more of a wisdom question." And as I look back on it, probably I should have done more of that.

Now, part of the way we operate—to defend myself a little bit—part of the way we operate is each Reserve Bank is independent, and the presidents are independent in developing their views on monetary policy. So we were expected to be shaping our views independently as opposed to pre-meeting collaboration—no one ever does that. But I probably could have found a time during the early years in which I could have gotten more of a grand perspective from people who had been doing this for a longer period of time than certainly I had.

Heintjes: Dennis, when you walk into the Federal Reserve's headquarters boardroom in Washington DC now that you're a veteran policymaker, how does it feel different now versus the first time when you walked into it as a newcomer to the Fed?

Lockhart: It's familiar territory now, of course. Ten years ago when I walked in for the first time…this is the Federal Open Market Committee room. It's a—maybe just to describe it for your listeners—it's a quite large room and quite ornate in certain ways, and it is, let us say, appropriate for the seriousness of the matters that are deliberated in this room. So being at that table for the first time was—at least, it could have been—a pretty intimidating first couple of meetings' experience.

Now, I had been in the room before, and this is just a little story that you might find amusing. In 1994, I had taken a course at MIT—I took a sabbatical from my business life—and it involved a trip to Washington, where we met with Alan Blinder, who at that time was the vice chair of the Federal Reserve. We met in this particular room, and I happened to get a seat directly across from Vice Chair Blinder at the time. And I remember, as he was telling us in august terms about conduct of monetary policy in the Federal Reserve, I reached under the table and there was gum stuck [laughter] to the bottom of the table. I remember thinking to myself, well, these people are pretty normal people, actually—they do important things, but they're just real people after all. And so, maybe to some small extent, that memory helped calm me down in that first meeting.

Heintjes: What aspects of the job of being a Reserve Bank president will you miss the most?

Lockhart: Inevitably, after all of the memories fade of the important decisions you've been a part of or the events that you have witnessed, the lingering memories are almost always of the people—the people I've been associated with. That includes the members of the staff here, and my colleagues at the Federal Reserve Bank of Atlanta, and my colleagues among the presidents—there are 12 presidents, so I was one of 12. And then my relationship with two chairs, Bernanke and Yellen, and all of the governors at the Board of Governors in Washington—all of those relationships have been extremely satisfying for the whole period of time that I've been in the Fed.

It's an unusual organization in that we do battle out hard decisions often, and there's conflict and differences of opinion. But it's extraordinarily collegial, and the staff of this Reserve Bank and all of the Reserve Banks are highly dedicated to the mission of the central bank and hardworking people who have very strong skills. So it's just been a privilege to be in an institution—call it a government institution—that operates so well and so effectively, and that's because of the quality of the people. So I will miss the people and miss those associations.

Heintjes: And you knew this would be my next question: What will you miss the least?

Lockhart: Certainly waking up every day and almost the very first thing I do every day, and have done for years, is look at a little schedule that my assistant gave me the evening before, saying, "This is what you do today, and this is what your schedule is for tomorrow" when she gave it to me. And seeing it be one meeting or one thing after another, some of which I know require preparation and are going to be challenging, and the issues require having your thinking cap on—that relentless pace of pretty critical meetings and so forth, maybe I won't miss that too much. Always feeling that there's more I could do to do my job well and more preparation required than I'd put into something, in some cases…those feelings are never good, so I will not miss that feeling.

Heintjes: Right, I can understand that. Dennis, come March will you transition to becoming a Fed watcher, or will you go cold turkey for a while?

Lockhart: I think it'll be very hard for me to not be a Fed watcher for probably the rest of my life, having been an insider in so many important decisions that affected the country—and for that matter, affected the whole world—so deeply, in a period of history that was so unusual and so demanding. So I'm sure that part of my regular existence will be watching the news and trying to understand what my colleagues are doing inside those meetings. It will not be easy to wean myself from that flow of information, that flow of important issues. So I expect I will be a Fed watcher for the duration. Having said that, I'm going to try to channel some energies into some other things that are important in public policy and perhaps in the business world as well. But I will always be quite interested in what the Fed is up to.

Heintjes: If you could give one piece of advice to your successor as Reserve Bank president, what would it be?

Lockhart: Well, I may have that opportunity in a few weeks' time, and my advice will be to start with an approach that respects the organization. That's not to say "honor all the traditions," but rather to start from the perspective that this is an organization full of highly dedicated people with very sophisticated skills in what they do and a record of integrity and a record of, for that matter, policy and operational success that I think needs to be respected. So I would advise my successor to use that as an opening frame of mind in learning the job and then playing his or her role as a policymaker and as the CEO of the Atlanta Fed going forward.

Heintjes: Dennis, how would you describe your proudest accomplishments here at the Atlanta Fed?

Lockhart: Well, there have been a number of accomplishments. I certainly inherited a fine organization, so in no way was I dealing with something that needed to be turned around—it was a strong organization when I arrived. But we have done a number of things to advance the organization and to introduce some new things, and there are too many to enumerate in detail.

But I think that this Reserve Bank, and the Southeast of the United States, has gone as far as any of the other Reserve Banks in systematizing our outreach and engagement of the business world and of the general public, to try to get anecdotal input that's quite useful—really useful—in developing a view for monetary policy. We have here what we call our Regional Economic Information Network [REIN] that involves a number of people who are in very frequent contact with large employers and major economic actors across the Southeast. I'm very proud of that, proud of some of the innovations our research department has done, very proud of the role that the Atlanta Fed has played in managing the part of the payments system of the country, and the strategic role that we played in helping the Federal Reserve move the payments system along and make it safer and at the same time make it faster. We've played a role in that. Our supervision area has, I think, responded well to the situation that developed in 2008 and 2009, and the best indication of their success is that the banking system across the Southeast is in a very sound condition.

And I could go on and on. We have a number of other different activities in the Bank—all have taken a good thing and made it better. I've been part of a team that did that, so I have to be proud of that.

Heintjes: Well, Dennis, as we've made clear by this point, this job has been a fairly all-consuming position for you. After you step down as Atlanta Fed president, what are your plans? Are you going to have a ceremonial smashing of your alarm clock or anything like that?

Lockhart: Well, that alarm clock has gone off fairly early in the morning over the last 10 years.

Heintjes: I'll bet.

Lockhart: So, rather than smash it I may just put it on mute for a while. [laughter] When I was asked to look at the statement that was going to be issued announcing my retirement, I said, "Well, let's change this word ‘retire' to ‘step down,' " and—

Heintjes: You'll note I never said "retire" today.

Lockhart: [laughter] So I'm hoping to stay active and not fully retire and find other channels for my energies. But I will be in greater control of my time, no doubt, and I will probably be doing a portfolio of things as opposed to one full-time job—or more than full-time job—like the one I've been in the last few years.

Heintjes: Dennis, thank you for talking with me today. I know I speak for all of us here at the Atlanta Fed when I say that we're not only going to miss your leadership and your steady hand at the rudder, but we're also going to miss having you as a colleague, and your successor will have some really big shoes to fill.

Lockhart: Thank you, Tom. It's been a pleasure working with you, and thank you for this wonderful interview.

Heintjes: And that brings us to the end of another Economy Matters podcast episode. I hope you'll join us next month, when we talk to Atlanta Fed economist Melinda Pitts about her research into the impact of financial debt on health and mortality rates. Thanks for listening.