Tags: Fed | Lockhart | Easing | economy

Fed’s Lockhart: Policy Makers Risk Excessive Easing to Stoke 'Disappointing' Recovery

Tuesday, 21 Aug 2012 09:13 AM

 

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Federal Reserve Bank of Atlanta President Dennis Lockhart said U.S. policy makers face a risk of easing too much while trying to spur a “disappointing” three-year-old economic recovery.

“There is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms that involve making tough choices about the allocation of public resources,” Lockhart said in a speech in Atlanta.

While “monetary policy can exert a powerful positive influence on an economy,” it “is not a panacea.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

The Federal Open Market Committee said on Aug. 1 it will “provide additional accommodation as needed” to bring about a steady reduction in 8.3 percent unemployment. The FOMC is injecting record stimulus to bolster an economy facing a debt crisis in Europe and the prospect that tax cuts will lapse and decreases in federal spending will take effect at year’s end.

New Fed easing may include a third round of asset purchases aimed at reducing borrowing costs or a change to the FOMC’s language on its outlook for interest rates, Chairman Ben Bernanke said last month in congressional testimony. Bernanke will have the opportunity to update his policy outlook in an Aug. 31 speech to the Kansas City Fed’s annual symposium at Jackson Hole, Wyoming.

“The recovery to date has seen weak growth and persistently high unemployment,” Lockhart, who votes on monetary policy this year, said in remarks prepared for a speech to the Latin American Chamber of Commerce and World Affairs Council of Atlanta. “By any number of measures, the strength of the recovery has been and remains disappointing.”

Economic Weakness

“Fundamental imbalances” are to blame for the economic weakness and pose “formidable challenges for monetary policy makers,” Lockhart said.

“I will leave it to economic historians to arrive at a verdict” on whether the U.S. or parts of the world are in a “lost decade” of anemic growth, he said. “Our current expansion is not on the track we would wish.”

Real personal income excluding government transfer payments remains 1.5 percent below its level before the recession began in late 2007, Lockhart said. There are more than 4.5 million fewer payroll jobs than in November 2007, and long-term unemployment remains elevated, he said.

Some U.S. economic data has exceeded expectations since the Aug. 1 FOMC meeting, with employers adding 163,000 jobs in July, the most in five months, and retail sales rising after three months of decline.

No Opinion

The Atlanta Fed president didn’t offer an opinion on the option of more asset purchases in his prepared text. He has repeatedly told reporters after events this year that he views a deterioration in the U.S. economy or a threat of falling prices as among the conditions that could warrant additional easing.

Lockhart said on July 13 that he viewed recent economic data “with increasing concern and in that sense my receptivity has increased a bit” for more asset purchases.

Lockhart, 65, a former Georgetown University professor, has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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