The market is paying attention to Atlanta Fed president Dennis Lockhart today regarding an end to quantitative easing. While some investors may be keying off of the “end of this year” in the commentary, they might not want to over-calculate what Lockhart is saying. After all, the speech getting covered today is regarding the economic outlook being presented to the Kiwanis Club of Birmingham on April 2, 2013.

Lockhart said that the time to trim the bond buying efforts from the Federal Reserve has not yet arrived. He did say that the Fed has the tools to tighten its fiscal policy when that time finally arrives. Despite saying that it is expected that the economy will make steady progress and that another recession is very unlikely, some investors may try to be looking for a Fed-exit telegraph here.

Lockhart noted that it is unlikely to expect a 4.5% unemployment rate again and he noted that some of the unemployment in the economy is now structural in nature. Lockhart also showed that the economy need to create 180,000 net jobs per month for three years just for unemployment to get back down to 6%

Growth projections made were that GDP would likely be over 2% with the coming months being important to the Fed outlook. That is even with the fiscal situation creating uncertainties. Inflation was called “well anchored” with the economy moving past the largest downside risks.

The key issue around the bond buying (QE-infinity) is that Lockhart acknowledged valid worries about the Fed’s bond purchases. The main takeaway is that Lockhart said that the time to start trimming the Fed’s bond buying effort has not arrived yet. He believes that the economy continues to need support from the Federal Reserve and said that tapering bond purchases may come near the end of 2013 or in early 2014.

Will bond buying ultimately end? Of course. Just don’t read into the speech today offering too much hope that the bond buying will end in the immediate future.

As a reminder, the Fed can trim bond buying efforts or even stop buying bonds entirely without ending all of its other quantitative easing measures. In theory, it could keep Fed Funds at a 0.00% to 0.25% target forever. It could keep the discount window at a rate that banks effectively get to arbitrage their borrowing against higher rate bond buying of their own. The Fed also is not under any obligation (nor hurry) to sell all of those bonds at any time that it has been buying, and it could just allow those bonds to roll off.

“QE whatever” we are on now on will ultimately end. The rest of the quantitative easing may go on indefinitely.

FULL LOCKHART SPEECH

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