Atlanta Fed’s Lockhart Speaks on FOMC Action

Dennis Lockhart, President of the Atlanta Federal Reserve Bank, spoke to a Georgia audience today and explained some of his thinking leading to the recent FOMC decision to begin purchasing agency mortgage-backed securities. Lockhart was one of 11 FOMC members to vote in favor of the new asset purchases.

Lockhart said he was guided by the numbers:

For most of the first half of this year, I held to a view on the medium-term outlook that predicted continuing growth at a modest pace, a gradual decline in unemployment, and inflation staying close to the FOMC’s 2 percent target. Recent data have called even this modest growth scenario into question. … [T]he accumulation of data through August suggested a slowdown from the already anemic pace of growth and a stagnating labor market.

Lockhart, something of an inflation hawk in the past, changed his mind however:

[T]he country’s employment situation is complex, with many factors at work to produce the static condition we now seem to face. But I have been persuaded that the problem is, to a significant enough extent, one of weak growth that can be ameliorated by prudent monetary policy actions. A stronger overall pace of recovery is central to improvement in the labor market. As I approached the FOMC meeting of last week, I concluded that there was indeed a call to action falling out of the discouraging conditions of slowing growth and still-high unemployment with meager recent progress in bringing it down.

Lockhart also noted that he is “not expecting miracles” from the new Fed policy. He’s not the only one.

Paul Ausick