Lockhart: Fed Still Has Ammo If It’s Needed

ATLANTA — Atlanta Federal Reserve Bank president Dennis Lockhart yesterday said that the Fed still has “considerable ammunition” and “ample scope” to change the size and composition of its balance sheet to combat the economic and financial crisis.

Lockhart, who will be voting on the Fed’s policymaking Federal Open Market Committee this year, said Friday’s December employment report shows how bad the economic picture is. He said he expects the economy to remain weak at least through mid-year with possible improvement in the second half — but also with the risk of a reverse.

Lockhart, in remarks prepared for the Atlanta Rotary Club, cited some improvements in credit markets, but said they remain unsettled and said restoring normal market functioning is a precondition for economic recovery. He said is the Fed is “focused on containing the impact of the economic downturn and stimulating a recovery as early as possible.”

Lockhart made several efforts to dispel the impression that the Fed has run out of room to stimulate the economy.

To begin with, he said the FOMC’s zero to 0.25% federal funds rate target has not “lost relevance” as some think. “I would argue that a federal funds rate this low will have considerable macroeconomic effect especially if accompanied by policies to improve the functioning of credit markets,” Lockhart said.

Besides, he added, even though “the fed funds rate can’t go any lower ... my intent is to assure you the Federal Reserve has not exhausted its policy tools.”

— Market News International

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