NEW YORK – The current monetary policy stance works, but as the economic recovery continues, adjustments may be needed, according to Federal Reserve Bank of Atlanta President and Chief Executive Officer Dennis P. Lockhart, who noted that could include “further policy accommodation.”
“We may find, as economic circumstances evolve, that policy adjustments are required. In more adverse scenarios, further policy accommodation might be called for,” he told the Greater Lafayette Chamber of Commerce, according to prepared text of his speech, which was released by the Fed. “But as of today, I am comfortable with the current stance of policy, especially considering the tensions policy must navigate between the short and long term and between recovery and the need for longer-term structural adjustments.”
Based on the weakness in the economy and the concern about the slow pace of the recovery, Lockhart said, “I don't think any policy option can be ruled out at the moment.”
The FOMC plans to keep the feds fund rate at near zero for two more years and maintain its “balance sheet scale for the foreseeable future,” a position he supports. But, he said, “it is important that monetary policy not be seen as a panacea … pushing beyond what monetary policy can plausibly deliver runs the risk of creating new distortions and imbalances.”
A modest recovery will continue, Lockhart believes, but “downside risks to the recovery have increased.” As a result, Lockhart suggested several structural adjustments including the need to deleverage. This process of shedding debt could take “several more years.”
While the process is ongoing in the private sector, he said, “discussions of how to reduce public debt have only just begun. The government still needs to introduce major policy changes to put public debt on a sustainable path.”
