WASHINGTON — Atlanta Federal Reserve Bank President Dennis Lockhart Monday night declared his comfort with the Fed maintaining its current aggressive pace of bond buying to boost economic growth at least into the latter half of 2013, arguing that the large-scale asset purchases remain appropriate for now given conditions in the jobs market.
In prepared remarks at the University of Tennessee, Lockhart painted the picture of an economy in which the risks are balanced, with the potential for acceleration should "potholes" such as self-made political crises be avoided, but with a projected growth rate that will only result in a gradual decline in unemployment.
The minutes of the January meeting of the Fed's policymaking Federal Open Market Committee, released last week, underlined the division and ongoing debate among Fed officials regarding the extent and duration of the open-ended program buying $85 billion a month in U.S. Treasury securities and mortgage bonds.
While he does not hold a voting position on the FOMC this year, Lockhart declared that "considering current labor market conditions, I think continuing the asset purchase program to support the recovery and to improve employment conditions remains appropriate for now.
"And given the outlook and associated risks, I am comfortable with sticking with the current approach at least into the second half of the year," he added.
Considered one of the more centrist officials within the Fed, Lockhart argued that he does not believe monetary policy has yet crossed the line where the benefits of quantitative easing "are swamped by serious concerns over problems the policy might be creating for the longer term."
When it announced the open-ended asset purchases at the end of last year, the FOMC vowed to continue buying bonds until it witnessed substantial improvement in labor market conditions.
Lockhart cautioned, however, that progress across indicators of labor market conditions may be uneven, making the state of overall employment conditions difficult to interpret.
"For this reason, I think we policymakers should be seeking to carefully balance considerations of longer-term potential costs against the efficacy of policy designed to achieve 'substantial improvement'," he said.
Still, the Fed's actions overall have supported the economy's progress since the end of the recession in 2009, Lockhart said.
"These policies have also helped to bring us to the current environment in which the presumption of continuing and potentially quickening progress is a reasonable one," he opined.
As part of its efforts to make monetary policy very accommodative, the FOMC declared that short-term interest rates would likely need to remain close to zero until the unemployment rate reaches a threshold of 6.5%.
Lockhart said he believes full employment in the longer term matches up to an unemployment rate "somewhat below" 6.5%, "so this threshold is an interim goal on the way to full employment."
"We made this threshold explicit in part to allow members of the public to gauge progress in the labor markets and draw their own conclusions about how long financing rates are going to remain at bargain levels," he added.
Going on to provide his outlook for the economy, Lockhart said the Atlanta Fed's readings of the incoming data suggest a continuation of a 2% GDP trend in the first quarter. For 2013 overall, he expects growth to come in between 2% and 2.5%.
"This pace of growth implies steady, but not accelerating, net job creation. At this pace of expansion, unemployment will likely continue to decline gradually," he said.
Lockhart described the risks surrounding his outlook as "currently pretty much in balance," despite the latest budget standoff between the Obama administration and Congress. While he does expect "some amount" of fiscal drag from spending cuts, Lockhart does not assume a political shock resulting from a self-inflicted crisis of some kind.
And Lockhart is of the opinion that the U.S. economy has the potential to do better, so long as lawmakers refrain from actions that could derail the recovery.
"If momentum continues and some of the potholes out there are avoided (particularly a political crisis around fiscal decisions), growth could accelerate," he predicted, adding "I detect a growing conviction that the economy is beginning to emerge from a long spell of anemic performance."
As for price stability, Lockhart noted that inflation has come "persistently under" the FOMC's explicit 2% target - and at times has been closer to 1%.
"To significantly and persistently undershoot the central bank's inflation target could be worrisome in some circumstances, but, at this point, I think the inflation outlook is benign," he said.
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