Fed’s Lockhart Sees Recovery Starting in '09

WASHINGTON — Atlanta Federal Reserve president Dennis Lockhart Tuesday night said he is changing his previous forecast to see recovery happening later than the second half of the year, a time which will continue to be weighed down by the key to the economy, housing, and lingering market disruptions.

“The drag of high energy costs, continuing financial market stress, and a still declining housing sector may continue for a while with gradual improvement of growth in 2009,” he said.

“Like many, I believe stabilization of the housing sector is required for recovery to proceed,” he told about 90 people at the Georgetown University library.

What’s ahead for housing, Lockhart said, is a long grind. “A sober approach to calling the future must allow for an additional period of house price decline, a slow housing sector recovery and, as a result, a quite choppy progression to better markets and economy,” he said.

In his question and answer session, Lockhart said inflation targeting is still discussed “among my colleagues.” He did not elaborate, other than to say the Federal Open Market Committee’s quarterly forecasts show where members believe inflation is heading.

Lockhart had earlier said that he’s “taking the recent inflationary pressures very seriously.” If the economy returned to stronger growth “but with higher and persistent inflation,” that, he said, “would fit the old adage about winning the battle but losing the war.”

Asked about U.S. deficits, he repeated that right now the red ink, as a proportion of gross domestic product, is not that out of line. Yet the nation faces an “avalanche” of entitlement shortfalls beginning in 2012 and “lasting some years.” So, he said, “It is not a time to be sanguine about fiscal deficits.”

In his prepared presentation before a panel discussion, Lockhart said there is “no evidence of a wage-price spiral” and that the core rate of inflation, though “above his comfort level,” is still “well below” the level of headline inflation.

Yet he said the Fed must take inflation threats very seriously, even though he has changed his outlook to see the second half now having “not much pickup,” instead of the gradual improvement he foresaw earlier in the year.

— Market News International

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