Atlanta Federal Reserve President and CEO Dennis Lockhart was speaking to the DeKalb Chamber of Commerce in Atlanta on Thursday. Included in his speech were views the economic picture now and ahead, comments on the Fed’s interest-rate policy, and what he expects in a policy normalization phase.

Lockhart said that some important aspects of the economic picture are actually weaker than a year ago. One aspect was, as you would guess, energy. Lockhart also said that despite inflation being under the FOMC’s target, he does expect that gap to close gradually. Lockhart also views the U.S. economy on a reasonably solid trajectory and said that recent data have been encouraging for growth at a moderate pace.

Here is what Fed watchers should really care about: Lockhart is comfortable moving the federal funds rate off zero soon. That was of course issued with a caveat that there is no marked deterioration in economic conditions. As a reminder, the Fed has used the term “data dependent” for longer than memory serves.

Lockhart’s view is that the trajectory of policy rate rises will be dictated by the evolution of the economy and the balance of risks. He also said that there will not be a predetermined path, and policy decisions will continue to be data dependent. Again, data dependent.

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Some selected points from the Dennis Lockhart speech follow:

• The normalization phase might look somewhat different than one’s sense of normal based on historic episodes of rising rates.
• We are four weeks away from the December meeting of the FOMC. I won’t predict the outcome. There are more data points to evaluate over the next four weeks. I will be processing that information to see whether the incoming data change my sense of the health and momentum of the economy—said differently, whether the data broadly support or undermine my base case outlook.
• Real final domestic demand data have been quite solid, driven in large part by robust consumer spending.
• Supporting consumer spending, employment conditions are undeniably, in my opinion, much improved relative to even a year ago. We can debate the extent of remaining labor resource slack, but I think the Committee’s earlier liftoff criterion of seeing “further improvement” has been met.
• The inflation picture is not so clear, however. Inflation has been running below the Committee’s longer-run target for a while. But I expect the gap to close gradually as the reduction in resource slack puts upward pressure on prices and the effects of the decline in oil prices and the rise of the dollar exchange rate subside.
• For me, a key point regarding inflation is that conditions have not been deteriorating, just hanging below target. Consistent with my rather sanguine outlook for inflation, survey measures of inflation expectations are not signaling imminent broad disinflation, in my view.
• Before the breakout of heightened financial market volatility in August, I was ready to support liftoff at the September meeting. But I supported the decision to hold off. I thought it was prudent to monitor global developments for a while.
• I also supported the decision at the October meeting to keep the policy rate unchanged because not enough new information had accumulated regarding the drivers of the August volatility. I’m now reasonably satisfied the situation has settled down—at least as regards the likely causes of market volatility that converged in August.
• I’m comfortable with moving off zero soon, conditioned on no marked deterioration in economic conditions. Given my reading of current conditions and my outlook views, I believe it will soon be appropriate to begin a new policy phase.
• I currently expect the path of policy increases to be relatively gradual or shallow, reflecting a cautious approach to the tightening of financial conditions shaped by policy. As a result, the pace of increases may be somewhat slow and possibly more halting than historic episodes of rising rates.
• Moreover, to the extent the evolving economic picture allows a process leading to a “resting place” (a neutral or equilibrium rate), that point might be lower than in the past, as implied by a somewhat lower trend rate of economic growth.
• I think the normalization phase might look somewhat different than one’s sense of normal based on historic episodes of rising rates.
• I will not predict the outcome of the next FOMC meeting. But I will say there are at least three contrary perspectives that could come out in a debate about the timing of the start of normalization.

Lockhart also is signaling that the coming rate hikes should be viewed as an economic net-positive event rather than because the Fed is scared of overheating economic reports. He said:

In my opinion, the decision to raise the bedrock policy rate, when and if it comes, should be seen as affirming that the economic outlook is positive. I would hope the announcement effect would bolster confidence in our economic future and contribute to the very outcome I’ve forecasted as the outlook yields to reality.

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