Before the Federal Reserve actually begins tightening monetary policy, the policymaking Federal Open Market Committee will formally signal that it is about to begin implementing an “exit strategy,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said Sunday.
That “major transition point” will likely be communicated by the FOMC removing from its policy announcement its commitment to keep the federal funds rate “exceptionally low … for an extended period,” Lockhart said.
He said the timing of tightening “remains to be determined,” but added that if the economy follows his “optimistic” forecast and “the expansion becomes more clearly sustainable,” it will become “appropriate” sometime in the next couple of years for the Fed to begin withdrawing monetary stimulus.
Lockhart, in remarks prepared for delivery to a Media Financial Management Association conference in Atlanta, projected 3%-4% growth over the next two years, with unemployment falling gradually and inflation settling at “2% or a bit less.”
“I have a rather optimistic outlook for continued expansion with moderate inflation and unemployment declining gradually,” he said.
“Once the expansion becomes more clearly sustainable, it will be appropriate to begin the process of normalization of interest rate policy and the Fed’s balance sheet.”
“The exact timing remains to be determined by the FOMC,” he said. “I am confident that the committee will provide guidance when we have enough certainty that the guidance will provide more signal than noise to financial markets and the public.”