WASHINGTON — Atlanta Federal Reserve Bank President Dennis Lockhart Tuesday said he would support a change in forward guidance when the central bank decides to begin to pull back on its $85 billion monthly asset purchases.
Lockhart, in an interview with Bloomberg Radio before a speech at the Auburn University Montgomery's 31st Annual Economic Forum, said he would consider adjusting the forward guidance in conjunction with a tapering decision.
"I would be supportive of consideration of that, maybe as a companion with some tapering decision," he said. "Conceivably, we might enhance the forward guidance really to convince the public and convince the market that the environment isn't going to change dramatically."
Separately, in remarks prepared for delivery that were similar to a speech he gave in Mississippi Friday, Lockhart said he expects 2.5% to 3% growth next year, but added "we'll need a pickup in consumer activity and, second, we'll need a fall-off of intensity of fiscal drag." He also said "there is a nontrivial chance that 2014 will look like 2013."
Since a Federal Reserve research paper last week, there has been speculation the Fed might consider lowering the unemployment threshold to 5.5%, lower than the current stated 6.5% unemployment threshold, at which the Federal Open Market Committee would start raising rates.
"I think forward guidance can go a long way to adding, let's say, some stimulus to the economy," Lockhart said during the radio interview. He is not a voter on the FOMC this year.
"It's changing the mix of tools relative to the situation," he said. "We can change our mix of tools without necessarily viewing that as a form of tightening. Tapering in my mind doesn't have to be synonymous with tightening. The markets may act differently of course, but I think the mix of tools has to be appropriate for the circumstances."
As for the timing of tapering, Lockhart said "I think it should be on the table at all the upcoming meetings, and there's a lot of considerations. I don't think the circumstances rule out a consideration in December."
But he added "the January meeting could turn out to be a little more complicated because, again, some of the fiscal concerns are going to be front and center at that time, but again I would not rule it out."
In his speech, Lockhart said that even with better growth, there's a likely chance that at the end of 2014 "inflation will still be too low and employment levels will be well short of the goal."
With that forecast, Lockhart said, "the right monetary policy for these circumstances is continued strong stimulus. That is not to say, however, that the mix of policy tools needs to or will stay the same."
Lockhart, who will be a voter on the FOMC in 2015, said in the radio interview he will be looking at the "total picture" when it comes to deciding to pullback on the $85 billion in Treasury and mortgage-backed securities the central bank buys each month.
"I don't think it's an inconsistency to contemplate a tapering - at least to have it on the table for discussion - while at the same time trying to communicate that the stance of policy is going to remain very accommodative."
Lockhart reiterated that the Fed's unconventional quantitative easing program wasn't meant to be permanent. "It was not meant to be a permanent fixture of policy, and the timing of when we would begin to wind it down or adjust the policy remains to be seen," he said.
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