EconSouth (Fourth Quarter 2007)

Research Notes and News

Research Notes and News highlights recently published research as well as other news from the Federal Reserve Bank of Atlanta.

Lockhart says housing and financial market transitions shape the general outlook
In a November speech, Atlanta Fed President Dennis Lockhart discussed the transitions taking place in housing and financial markets and how those developments affect the U.S. economic outlook heading into 2008. Recent financial market turbulence, he believes, will ultimately help to usher in a restructured state of normality in markets, which will feature improved risk management practices, reduced leverage, and greater transparency for market participants.

Speaking to the Huntsville (Ala.) and Greater Huntsville Rotary Clubs, Lockhart provided a recap of the housing downturn and its effects on the overall U.S. economy, which he described as being limited at present. He noted recent economic strength but also mentioned the greater degree of uncertainty attached to the economic outlook, much of which "relates to the potential depth, length, and impact of the housing downturn and potential flow-back to Main Street from the turbulence we have seen on Wall Street," he said.

From business contacts, including the Atlanta Fed's board of directors, Lockhart has heard anecdotal information that "attitudes toward future discretionary capital investment have grown more cautious since the onset of financial market turmoil." He attributed this negative sentiment about future capital expenditures to growing pessimism about economic growth rather than restrictive credit conditions for businesses.

Lockhart said he supported the Federal Open Market Committee's recent decisions to reduce the federal funds rate, basing his position in part on "the notion of insurance against downside risks to the general economy given the unusually high level of uncertainty."

He also believes core inflation is likely to continue to moderate. But "recent increases in energy and commodity prices, among other factors, could put renewed upward pressure on headline inflation—the inflation you and I encounter in the marketplace," he added.

On the economic front, Lockhart believes the most likely story line is a moderate slowdown in economic activity over the coming quarters, with a return to growth near trend by late 2008 as the housing sector begins to recover. "Underpinning this story is the view that our modern market economy has a keen ability to self-correct as opportunistic capital moves into depressed markets," he said.

New Atlanta Fed DVD helps banks prepare for disasters
In the aftermath of a disaster, banks play a vital role in distributing cash to the public, ensuring that people are able to meet their families' and businesses' financial needs. A new Atlanta Fed DVD, to debut in January 2008, is designed to help financial institutions prepare for emergencies, such as hurricanes, pandemics, and floods.

Drawing on the experience of bankers and Atlanta Fed staff who have weathered disasters, the DVD, Crisis Preparedness: Reconnecting the Financial Lifeline, profiles various facets of crisis preparedness for financial institutions. These topics include preparing and testing a plan, caring for employees, providing cash to customers, and working with emergency first responders, such as police officers and firefighters.

First-person interviews explore profound lessons learned from Hurricane Katrina as well as steps taken since. For example, after Katrina destroyed its headquarters on the Gulf Coast, a community bank in coastal Mississippi has built a data center 20 miles inland. And a Louisiana bank, having experienced firsthand people's desperate need for cash in an emergency, has secured permission to have its staff be among the first to access restricted areas after a disaster.

In another real-life example, the DVD visits the Regions Bank command center in Birmingham, Ala., where employees monitor local weather conditions for 1,900 offices in 16 states. During emergencies, Regions Bank also deploys a mobile branch in a specially equipped recreational vehicle.

The DVD can be downloaded or ordered from the Atlanta Fed's Web site.