ATLANTA — Atlanta Federal Reserve Bank President Dennis Lockhart said Tuesday he wouldn't advise a decision that commits the Fed to "a full phase-out of asset purchases" when it meets in September, stressing the need for more data.
Before the September meeting Federal Open Market Committee, there will be one more employment report, two inflation reports and a second-quarter GDP revision. "I don't expect to have enough data to be sure of my outlook," he said in a speech to the Kiwanis Club in Atlanta. "For that reason, I don't think a decision that commits the Fed to a full phase-out of asset purchases and lays out a precise, beginning-to-end path for doing so would be advisable."
Lockhart, who is not a voting member of the FOMC, stressed that any decision to cut back on the Fed's $85 billion in asset purchases should be based on economic progress.
"The rolling outlook from here is what really matters in making future decisions on asset purchases," Lockhart said. "I will need to get comfortable that the employment progress we've enjoyed is not stalling and that disinflation pressures are not building."
Still, there has been "steady progress in economic fundamentals in my opinion," Lockhart said. "Progress is evident, and we should not lose sight of that."
But one area Lockhart said is adding to a "lack of clarity" is weak labor productivity growth. He noted that "employment gains have been strong enough to lower the unemployment rate while GDP growth has remained lackluster As a matter of arithmetic, healthy employment growth coupled with tepid GDP growth implies weak labor productivity growth. And in fact, productivity growth in recent quarters has been significantly below historical norms."
Lockhart said he expects consumer activity to pick up, the housing rebound to continue and exports to show improvement. He added he expects less of a public sector drag on the economy. "I think this is the most probable forecast. But it's not a sure thing," he said.
He also warned of the risk of a "fiscal shock" over the debt ceiling debate, the threat of a government shutdown over the Affordable Care Act and the budget. "The play-out of deliberations in Congress in September on the debt ceiling and other fiscal matters could contribute to a weaker scenario by influencing business and consumer confidence," he said. "I don't think the risk of a fiscal confidence shock is negligible."
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