Any decision on cutting the Fed's asset purchases will be based on economic data, Atlanta Federal Reserve Bank President and CEO Dennis Lockhart said Tuesday, warning of the "potential for ambiguous or disappointing data."

While investors and the public are preoccupied with what the Fed is going to do, Lockhart told the Kiwanis Club of Atlanta "up to now, the uneven performance of the economy has not permitted the FOMC to provide this certainty."

Calling the expectation of tapering and ending the purchases "firmly established," Lockhart said, "Financial market participants put a higher probability on near-term tapering happening than not."

But, he noted, "When I weigh the balance of risks around the medium-term outlook I laid out, I have some concerns about the potential for ambiguous or disappointing data. I also think that it is important to be realistic about the degree to which we are likely to have clarity in the near term about the direction of the economy. Both the quantity of information and the strength of the signal conveyed by the data will likely be limited.

"As of September, the FOMC will have in hand one more employment report, two reports on inflation, a revision to the second-quarter GDP data, and preliminary incoming signals about growth in the third quarter. I don't expect to have enough data to be sure of my outlook. 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."

Adjustments to the asset-purchase program "should be the beginning of a process with steps that will be determined as later information arrives and certainty about the direction of the economy accumulates. As I see it, a decision to proceed-whether it is in September, October, or December-ought to be thought of as a cautious first step," he said.

"Policymaking is quite appropriately forward-looking because monetary policy actions affect the economy with a lag. The rolling outlook from here is what really matters in making future decisions on asset purchases," Lockhart noted. "I will need to get comfortable that the employment progress we've enjoyed is not stalling and that disinflation pressures are not building."

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