Atlanta Federal Reserve president visits Macon, addresses economy

lmorris@macon.comFebruary 19, 2014 

This year’s winter weather has caused more trouble than icy roads and power outages.

“Weather effects may very well have dampened retail sales, auto sales, housing starts, manufacturing activity and, of course, transportation, among others,” Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, said during a Macon luncheon Wednesday. “Weather is also likely to affect the February unemployment report, which we’ll receive on March 7.”

About 50 people, mostly Middle Georgia business leaders, attended the event held at the Drake Field House at Mercer University.

Lockhart took office in March 2007 as the 14th leader of the Sixth District Federal Reserve Bank. His district covers Alabama, Florida, Georgia and several counties in Tennessee, Louisiana and Mississippi. This year, he serves as an alternate voting member of the Federal Open Market Committee.

Lockhart said his comments were his personal views and “may not reflect those of my colleagues” in the Federal Reserve.

Because of the weather and other factors, Lockhart said it’s difficult to get an indication this quarter of what most likely will happen with the economy this year and early 2015.

The economy seemed to move to a “higher growth track” during the second half of 2013, he said. According to data received so far, which doesn’t include the final numbers for the fourth quarter, the economy expanded in the second half at an annual rate of 3.6 percent.

“That is about 1½ percentage points above the economy’s average growth since the end of the recession,” he said.

Mixed data on economic activity in December and January have raised concerns about whether the economy has traction at this faster growth pace, he said,

“The recent mixed data could be just a temporary thing ... or something more fundamental going on,” he said. “While I’m tracking the numbers carefully, at the moment I think it’s too early to draw a conclusion.”

However, Lockhart said his outlook is optimistic for 2014.

“I expect real (gross domestic product) growth to be between 2½ and 3 percent,” he said. “I remain hopeful for the full year, because I think the fundamentals underpinning economic performance are notably improved compared to a year ago and earlier.”

Short-term interest rates may increase during the second half of 2015, according to what the Federal Open Market Committee said recently on the subject, Lockhart said. The FOMC is a Federal Reserve committee that makes key decisions about interest rates and the growth of the U.S. money supply.

The date of the first increase of the policy interest rate is called the liftoff.

“The central policy question is the timing of liftoff,” he said. “The key criteria for a liftoff decision are a firming of inflation to near the FOMC’s target of 2 percent and both a quantitative and qualitative closing of the employment gap.”

The Fed’s interest-rate decisions set the tone for broader financial conditions, and participants in longer-term bond markets anticipate the future path of the Fed’s policy rate in determining the rates charged for car loans and home mortgages, he said.

In December 2012, the FOMC set an unemployment rate of 6.5 percent as a threshold to consider a liftoff, he said. The U.S. rate is now 6.6 percent, and while the decline has been faster than many expected, the reasons are more complicated than just unemployed people finding jobs.

Some baby boomers are retiring, while some people who are “marginally attached” to the workforce are available for work but have not actively looked for a job in the past month. A subset of the marginally attached population are “discouraged workers,” who are not looking for a job because they don’t think work is available.

All of these categories of unemployed people grew during the recession and have stayed up through the recovery, he said. So, while the unemployment rate is at 6.6 percent, “I would argue the official unemployment rate overstates progress to date. At the same time, the low readings of inflation are hard to square with stronger growth.”

To contact writer Linda S. Morris, call 744-4223.

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