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Mar-23-2010Fed's Lockhart: Don't lift low rate pledge too soon(topic overview)
CONTENTS:
- NAPLES, Fla., March 22 (Reuters) - The U.S. Federal Reserve should not remove its pledge to keep interest rates ultra-low for an extended period until it is starting to move toward tighter monetary policy, a senior Fed official said on Monday. (More...)
- NAPLES, Fla., March 22 (Reuters) - Greece's budget crisis holds lessons for the U.S. government, whose own fiscal troubles risk boosting inflation expectations and complicating monetary policy, a top Federal Reserve official said on Monday. (More...)
- Markets are constantly adjusting that anyway." (More...)
- Lockhart said the debt crisis in Greece might affect U.S. growth if it resulted in a stronger dollar that impaired exports. (More...)
- "The current accommodative stance of policy is not inconsistent with the dual mandate as long as inflation expectations remain well anchored," Lockhart said to the Naples Council on World Affairs, referring to the congressionally mandated goals of price stability and full employment. (More...)
- NAPLES, Fla., March 22 (Reuters) - The United States should not take its "very privileged position" as the world's reserve currency for granted over the long haul, a senior U.S. Federal Reserve official said on Monday. (More...)
- Based in London, he writes about international economic trends and the British economy. (More...)
- Dennis Lockhart, president of the Atlanta Fed, threw a wrench into the conventional interpretation of the Fed speak phrase "extended period." (More...)
- Thomas Hoenig, president of the Kansas City Fed, dissented from last week's decision, citing concern that the commitment to low rates could lead to a buildup of "financial imbalances" and increase risks to "longer-run" economic stability, according to the FOMC statement. (More...)
- "If such a situation begins to develop, the Fed will face a difficult trade-off between continued support for the recovery and aggressive action to reanchor inflation expectations," he said at an event in Naples, Florida. (More...)
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NAPLES, Fla., March 22 (Reuters) - The U.S. Federal Reserve should not remove its pledge to keep interest rates ultra-low for an extended period until it is starting to move toward tighter monetary policy, a senior Fed official said on Monday. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, offered a lukewarm assessment of the U.S. economic recovery, which he deemed "fragile and tentative," as he commented on the Fed's commitment to low interest rates. In an overview of global currents that could affect the U.S. economy, Lockhart said he saw no near-term threat that China would stop being a major buyer of U.S. Treasuries. Over the long term, he warned that the U.S. dollar's "very privileged position" as the world's reserve currency will likely shift, forcing the United States to be more fiscally disciplined. The U.S. central bank at its March policy-setting meeting reiterated that it will keep rates extraordinarily low for an extended period. A more upbeat note on the U.S. labor market offered a hint that the Fed might be moving closer to dropping its promise to hold borrowing costs at rock-bottom level. [1] NAPLES, Fla., March 22 (Reuters) - The Federal Reserve should not remove the "extended period" phase on its ultra-low interest rates until it begins to move towards tighter monetary policy, a top Fed official said on Monday. "I think the 'extended period' phrase has become enough of a focus of markets that we'd be ill-advised to change it until it's clear we are beginning to move towards tightening," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta told reporters after giving a speech to the Naples Council of World Affairs. Lockhart said that to him "extended period" simply means "not imminent." Lockhart is not a voter on the Fed's policy-setting committee this year. Asked if the market is getting ahead of itself in pricing in a Fed intereste rate hike by the end of 2010, Lockhart said: "My sense is that the market has pretty much understood the circumstances similar to the way I see them." "I wouldn't say that they are getting ahead of themselves in terms of the timing. Markets are constantly adjusting that anyway," he added. Lockhart said he does not have a sense yet on the best exit strategy sequence, but does not favor early use of asset sales as an early tightening tool. He said he expects the end of the Fed's mortgage-backed securities purchases to have little, if any, effect on mortgage spreads. [2]
March 22 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said low interest rates are still needed to support the economic recovery, with inflation likely to pose little threat in the near future. "The recovery under way seems at this juncture to be tentative and fragile," Lockhart said today in a speech in Naples, Florida. [3] NAPLES, Fla. (Dow Jones)--The U.S. economy is on a path to modest recovery, with a slow reduction in unemployment and little threat of inflation on the horizon, though ultra-low key interest rates remain appropriate to stimulate growth, said Federal Reserve Bank of Atlanta President Dennis Lockhart in a speech Monday. [4]
WASHINGTON, March 22 (Xinhua) -- The Greek debt crisis could affect the U.S. economy in several ways, including constraining euro zone growth and thus constraining U.S. exports, warned Federal Reserve Bank of Atlanta President Dennis Lockhart on Monday. [5] WASHINGTON — The Greek debt crisis may directly affect the U.S. economy by hitting American exports and the financial system, Atlanta Federal Reserve regional chief Dennis Lockhart warned Monday. He said adjustments across the European Union to fiscal problems resulting from the Greek crisis could dampen eurozone growth and constrain U.S. exports to that region. [6]
Lockhart said, the possibility that the Greek fiscal crisis might lead to a broad shock to financial markets "could play out in the banking system or in the form of a general retreat from sovereign debt." "The Greek crisis might directly affect the U.S. economy," warned Lockhart, the first U.S. central bank official to clearly express such concerns. He said that the possibilities he cited had not been factored into his outlook so far. "But developments around the Greek situation deserve rapt attention," he said. The 16-nation eurozone is enduring the worst crisis in its history amid spiraling government debt levels, anemic economic growth rates and rising social protest against austerity measures and high unemployment. [6] Greece's fiscal crisis could lead to what Mr. Lockhart called "a broad shock" to financial markets, which in turn would hurt the world's banks and make sovereign debt less attractive to financial institutions. Mr. Lockhart said that in his opinion the U.S. recovery began last summer and accelerated in the fourth quarter by slowing inventory liquidation. "Business spending on equipment and software is helping to offset softer housing and commercial construction," he added. He also said, that the U.S. has a long way to go before it solves its unemployment problems while containing inflation. "The Greek drama we're watching with such great interest should heighten recognition of the urgent need here in the United States for a credible path to fiscal sustainability," he said. [7] Although inflation expectations remain well anchored at present, Lockhart warned that if the public become convinced that nothing will be done to restore the federal fiscal balance, especially at the federal level, this skepticism may be reflected in inflation expectations. "In my view, the capacity to maintain interest rates at the level appropriate to support the recovery depends critically on containment of inflation expectations," he said. Lockhart said the "Greek drama" should heighten recognition of the urgent need to establish a credible path to fiscal sustainability in the U.S. The 16-nation european monetary union is facing its worst crisis in history, on the back of problems with public finances in Greece, which has the largest budget deficit in the euro area. [8] The Fed official said government finances are strained at all levels, with the rising debt-to-GDP ratio a source of "great" concern. Not only do these fiscal pressures represent another downside risk for the broad economy, he said, "but I see a connection to inflation risk as well." Although the current accommodative stance of policy is not inconsistent with the dual mandate as long as inflation expectations remain well anchored, Lockhart cautioned that if the public becomes convinced nothing will be done to restore the federal fiscal balance, especially at the federal level, this skepticism may be reflected in inflation expectations. "In my view, the capacity to maintain interest rates at the level appropriate to support the recovery depends critically on containment of inflation expectations," he said. He said the "drama" in Greece should heighten recognition of the urgent need in the U.S. for a credible path to fiscal sustainability. [9]
WASHINGTON (MNI) - Atlanta Federal Reserve President Dennis Lockhart warned Monday that although he is not concerned about inflation in the immediate future, concerns over the rising U.S. deficit -- and belief the country will inflate out of the problem -- could increase inflation expectations and present a dilemma for monetary policy. "If such a situation begins to develop, the Fed will face a difficult trade-off between continued support for the recovery and aggressive action to re-anchor inflation expectations," Lockhart in prepared remarks to the Naples World Council on World Affairs in Florida. He noted that current monetary policy as it stands is "obviously very accommodative, and, in my opinion, is appropriate for a recovery that is tentative and facing headwinds." [9] NAPLES, Florida, March 22 (Reuters) - Problems in commercial real estate are a "serious concern," Atlanta Federal Reserve Bank President Dennis Lockhart said on Monday. Lockhart told the Naples Council on World Affairs that most of commercial real estate's woes still lie ahead, but added he wouldn't call them a crisis. [10]
NAPLES, Fla. (Dow Jones)--Federal Reserve officials should not remove the reference to key interest rates remaining ultralow for an "extended period" of time until a rate increase is imminent, said Federal Reserve Bank of Atlanta President Dennis Lockhart on Monday. [11] "I think we should should view that exorbitant privilege as not permanent," Atlanta Federal Reserve Bank President Dennis Lockhart said in response to an audience question after giving a speech in Naples, Florida. [12] Asia is driving a global economic rebound, but Greece could spoil the recovery and provides an object lesson for the U.S. to get its economic house in order, Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, said in Naples, Fla, Monday. [7] Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, offered a lukewarm assessment of the U.S. economic recovery, calling it "fragile and tentative." [13]
NAPLES, Fla., March 22 (Reuters) - Greece's budget crisis holds lessons for the U.S. government, whose own fiscal troubles risk boosting inflation expectations and complicating monetary policy, a top Federal Reserve official said on Monday. [13] "I am concerned about the possibility of a monetary policy dilemma developing," Lockhart said. "The Greek drama we're watching with such great interest should heighten recognition of the urgent need here in the United States for a credible path to fiscal sustainability." Developments in Greece, he added, could constrain U.S. growth by lowering exports to Europe and driving the dollar higher, thereby making U.S. exports less competitive. Greece stunned markets in October last year when it revealed that its budget deficit for 2009 would be 12.7 percent of gross domestic product -- over twice as big the previous estimate and more than four times the 3 percent ceiling imposed on members of the euro zone. [13] Lockhart pointed to Greece's budget crisis as holding lessons for the U.S. government. "The Greek drama we're watching with such great interest should heighten recognition of the urgent need here in the United States for a credible path to fiscal sustainability." In that vein, Lockhart warned after his speech that the United States should not take its "very privileged position" as the world's reserve currency for granted over the long haul. "I think we should should view that exorbitant privilege as not permanent," he said. [1]
Risks have grown to the credit ratings of the United States and other large triple-A sovereign debt issuers, Moody's Investors Service cautioned recently. "The Greek drama we're watching with such great interest should heighten recognition of the urgent need here in the United States for a credible path to fiscal sustainability," Lockhart said. "Rising public awareness of the country's serious fiscal imbalances should serve as a call to action," he added. [6]
Markets are constantly adjusting that anyway." "My sense is that the market has pretty much understood the circumstances similar to the way I see them," he added. Lockhart warned about the threats from a weak banking sector, which he said would continue to put a damper on lending and investment. He highlighted the risk to global economic activity from uncertainty about the budget outlook of many advanced economies, including the United States. He said high deficits could raise price expectations among consumers and investors, forcing policy makers to raise interest rates when the economy is still too weak to handle it. "I am concerned about the possibility of a monetary policy dilemma developing," he said. [1] In prepared remarks to the Naples Council of World Affairs, Lockhart said high deficits could raise price expectations among consumers and investors, forcing policy makers to raise interest rates when the economy is still weak. [13] Lockhart on Monday said that ultra low interest rates were appropriate and cautioned against removing the "extended period" phrase too soon. "I think the 'extended period' phrase has become enough of a focus of markets that we'd be ill-advised to change it until it's clear we are beginning to move towards tightening," Lockhart told reporters after giving a speech to the Naples Council of World Affairs. Lockhart said the phrase "extended period" to him simply means "not imminent." That's in contrast to the president of the Chicago Fed, Charles Evans, for example, who has said it means "at least six months" to him. [1] James Bullard, president of the St. Louis Fed, told CNBC on Monday that the vow limits the central bank's policy flexibility. Bullard is a voter this year on the Fed's policy-setting panel, while Lockhart is not. Asked if financial markets are getting ahead of themselves in pricing in a benchmark interest rate hike by the end of 2010, Lockhart said: "I wouldn't say that they are getting ahead of themselves in terms of the timing. [1]
Asked if the spread between the benchmark federal funds rate and the Fed's discount rate it charges banks for emergency loans should be returned to the 100 basis point spread it has been historically, Lockhart said: "There's nothing magic about 100 basis points." He said it was not necessary to return to that spread, adding "It's an open question." [2]
Lockhart, 63, said an eventual tightening would depend on economic conditions, including the ability of the economic recovery to be self-sustaining because of stronger consumer spending and business investment, and either falling unemployment or an imminent decline in the jobless rate. "I don't think it is sensible to put some artificial time line on" the extended period, he said. He also told reporters he wouldn't take issue with some traders' expectations of an increase in the benchmark federal funds rate by the end of the year. "Markets have been adjusting the timing as we go along," he said. [3] Headwinds to growth include a "weak banking sector," muted consumer spending and "extremely cautious business investment." Fed officials last week repeated their pledge to keep the main interest rate near zero for an "extended period" to ensure a sustained recovery. [3] Lockhart said low interest rates is appropriate for a recovery that is facing headwinds. These headwinds include a weak banking sector, subdued consumer spending, and extremely cautious business investment. [8]
Lockhart said the debt crisis in Greece might affect U.S. growth if it resulted in a stronger dollar that impaired exports. In response to an audience question, Lockhart said he doesn't expect China to sell its holdings of Treasuries. "Their sensible policy will be to continue to buy U.S. Treasuries," he said. During audience questions following a second speech, Lockhart said other countries may diversify their holdings from the U.S. dollar over time. "What I see is a gradual and somewhat natural deterioration of our dominant position in favor of some of the other currencies I mentioned, and possibly in time the Chinese currency," he said. [3] Japan's economic growth trajectory remains very uncertain, while the recovery in Europe is fragile due to concerns over Greece and other nations with large fiscal burdens. Lockhart expanded on ways he believes Greece's problems could impact the U.S., for instance that fiscal problems could dampen euro area growth and so constrain U.S. exports. He warns that safe haven currency flows from the euro into dollar assets could cause appreciation of the dollar and hurt U.S. export competitiveness. [9] Lockhart expanded on ways the Greek crisis could hit the U.S. First, the fiscal problems in the E.U. could dampen euro area growth and constrain U.S. exports to that region. [8]
The region is further benefiting from rising commodity prices." What he termed both "the Greek crisis," and "the Greek drama," however, may impact the recovery, which the United States currently is undergoing. With Greece's public debt now estimated at 125 percent of its gross domestic product, it could dampen economic growth throughout the European Union, thereby dampening U.S. exports to the European continent, he said. [7]
Global growth, led by emerging Asian nations, including China, keeps demand stoked for U.S. exports, Lockhart said. [4]
The crisis could also lead to currency flows from the euro into "safe-haven" U.S. dollar assets, causing an appreciation of the greenback and hurting American export competitiveness, Lockhart said. [6] The dollar might appreciate due to "safe haven" flows of euros into dollars that also would cut into U.S. export competitiveness. [7]
"The current accommodative stance of policy is not inconsistent with the dual mandate as long as inflation expectations remain well anchored," Lockhart said to the Naples Council on World Affairs, referring to the congressionally mandated goals of price stability and full employment. "For the time being, inflation expectations are holding steady," said Lockhart, who isn't a voting member this year on the rate-setting Federal Open Market Committee. "It is hard for me to summon much concern about inflation in the immediate future." [3] Policy makers would be "ill-advised" to change the wording on keeping key rates low "until it's clear that we're beginning to move toward tightening," Lockhart said in an interview after delivering prepared remarks at the Naples Council on World Affairs. Lockhart, who is not a voting member this year on the rate-setting Federal Open Market Committee, said he would look. [11]
"(There is) the possibility that the Greek fiscal crisis could lead to a broad shock to financial markets," Lockhart said in a prepared speech for the Naples Council on World Affairs. "This could play out in the banking system or in the form of a general retreat from sovereign debt," he added. [5] Third is the possibility that the Greek fiscal crisis could lead to a broad shock to financial markets -- impacting the banking system or in the form of a general retreat from sovereign debt, Lockhart said. At this point, "these possibilities are not factored into my outlook in any way. Developments around the Greek situation deserve rapt attention," he concluded. [9]
The Greek turmoil has been wreaking havoc in financial markets since late last year, leading to warnings over mounting public debt levels in particularly developed nations. The International Monetary Fund at the weekend warned rich nations to be wary of their surging government debt levels as they could dampen economic recovery from recession. [6]
While saying the economy is improving, policy makers noted that "housing starts have been flat at depressed levels" and "employers remain reluctant to add to payrolls." "The extended period phrase has become enough of a focus of the financial markets that we would be ill-advised to change it until it is clear we are beginning to move toward tightening," Lockhart told reporters following his speech. [3] Lockhart said the economy appears to be slowing from the fourth quarter's 5.9 percent annual growth pace, with first quarter rate likely to be about 3 percent. Lockhart told reporters after his speech growth for the full year would also be about 3 percent. "Underlying continued growth is a steady improvement in private spending in the United States," he said. [3]
The outlook for the global economy also continues to see improvement, the Atlanta Fed chief said, noting that "China's economic growth has been especially strong, lifting global demand for raw materials and capital goods." Latin America has also weathered the crisis "much better" than previous downturns he said, due to stronger economic fundamentals. [9] "Emerging Asia is driving the global rebound, led by China and India. China's economic growth has been especially strong, lifting global demand for raw materials and capital goods," he said in a speech released to the press the afternoon of March 22 that was delivered to the Naples Council on World Affairs. He also said that Latin America has "weathered the global crisis much better than previous downturns thanks to stronger economic fundamentals. [7]
NAPLES, Fla., March 22 (Reuters) - The United States should not take its "very privileged position" as the world's reserve currency for granted over the long haul, a senior U.S. Federal Reserve official said on Monday. [12] "As our role as reserve currency yields some position to other currencies, in what I would think would be a natural process over the next 20 or 30 years, we will then become more disciplined by external financial views about our currency and about our country," Lockhart said. "We have some time, but I think it is important to address the fundamentals, the fiscal imbalances in this country." [1] "As our role as reserve currency yields some position to other currencies, in what I would think would be a natural process over the next 20 or 30 years, we will then become more disciplined by external financial views about our currency and about our country," Lockhart said. "We have some time, but I think it is important to address the fundamentals, the fiscal imbalances in this country." In response to another question, Lockhart said he does not anticipate that China "will declare itself satiated and stop buying Treasuries cold". [12]
Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. He has been watching the European Central Bank and eurozone economies since 2004. He has previously worked in London, Bonn, Berlin, Jerusalem and Brussels. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. [14] The central banker noted that government finances were "severely strained" at all levels. "Clearly an ever rising debt-to-GDP ratio is unsustainable and a matter of great concern," he said. Not only do these fiscal pressures represent another downside risk for the economy, but he opined that they provide an inflation risk as well. [8] For now, however, Lockhart said inflation expectations are holding steady, and incoming data suggest price pressures are muted. "It is hard for me to summon much concern about inflation in the immediate future," he said. [9] A weak housing market, which has been a particular problem in Florida, continues to be a concern, Lockhart said. "With job growth negative to flat, real incomes have stagnated," he said. [3] Overall, Lockhart expects the U.S. to experience a "relatively modest recovery, with slow reduction of unemployment." He predicts various headwinds to hold back GDP growth. "A weak banking sector that is slow to expand credit in part because of weak loan demand and commercial real estate problems, subdued consumer activity reflecting a more frugal consumer mindset as well as restricted consumer credit, and extremely cautious business investment in both inventory and capital goods." [9]
"Underlying continued growth is a steady improvement in private spending in the United States. Consumer spending is expanding modestly," he said. "The recovery under way seems at this juncture to be tentative and fragile." [9]
Dennis Lockhart, president of the Atlanta Fed, threw a wrench into the conventional interpretation of the Fed speak phrase "extended period." [14] An odd headline on Reuters quotes Atlanta Fed President Lockhart as saying the Fed should retain the phrase that they will keep rates usually low for an extended period until the Fed is ready to hike rates. [15]
The common interpretation of "extended period" (as in, the Fed is expected to maintain exceptionally low rates for an "extended period") is six months. In a question and answer period today, Mr Lockhart rejected that interpretation, according to Reuters, instead saying that "extended period" means only "not imminent," seeming to give the phrase a less meaning (and the Fed more flexibility) than its generally interpreted to have. Of course, this all depends on what the meaning of "imminent" is. [14]
Thomas Hoenig, president of the Kansas City Fed, dissented from last week's decision, citing concern that the commitment to low rates could lead to a buildup of "financial imbalances" and increase risks to "longer-run" economic stability, according to the FOMC statement. [3]
Europe-wide problems with public finances are particularly acute in Greece, which has the highest public deficit in the eurozone and has been the focus of concerns on financial markets that have dragged down the value of the euro. [6]
"If such a situation begins to develop, the Fed will face a difficult trade-off between continued support for the recovery and aggressive action to reanchor inflation expectations," he said at an event in Naples, Florida. [8]
SOURCES
1. WRAPUP 2-Fed's Lockhart: Don't lift low rate pledge too soon | Reuters
2. Fed's Lockhart: Don't lift 'extended' phrase too soon | Reuters
3. Lockhart Says Low Rates Needed to Help Recovery (Update4) - BusinessWeek
4. Fed's Lockhart: US Economy Modestly Recovering; 'Headwinds' Persist - WSJ.com
5. Fed official says Greek crisis could affect U.S. economy
6. AFP: Greek crisis may hit US economy: Fed regional chief
7. Greece'''s Fiscal Mess Could Spoil Asian-Fueled Recovery
8. U.S. Fiscal Concerns May Create Inflation Risk - Fed's Lockhart
9. Fed Lockhart: US Deficit Concerns Could Hike Infln Expectatns | iMarketNews.com
10. Fed's Lockhart concerned on commercial real estate | Reuters
11. Fed's Lockhart:'Extended Period' Language On Rates Should Stay - WSJ.com
12. Lockhart: US mustn't take dollar's role for granted | Reuters
13. Fed's Lockhart: Greek crisis highlights U.S. woes | Reuters
14. Just how long is 'extended'? | Money Supply | FT.com
15. Lockhart: Keep "extended period" until time to hike | ForexLive
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