Despite rate cuts at three straight Federal Open Committee meetings, Wall Street remains concerned about market deterioration spreading and infecting the broader economy, Federal Reserve Bank of Atlanta president Dennis P. Lockhart said yesterday.
“Looking to 2008, I believe the pivotal question — the central uncertainty — is the extent of current and future spillover from housing and financial markets to the general economy,” Lockhart told the Rotary Club of Atlanta, according to prepared text of his remarks released by the Fed. “The dynamics I’m watching — stated simplistically — are the following. First, there’s the effect of dropping house prices on the consumer and in turn on retail sales and other personal expenditures. And second, I’m watching the effect of financial market distress on credit availability and, in turn, on business investment, general business activity, and employment.”
The bank president predicted weak, modest growth in the first half of the year, assuming “the housing situation doesn’t deteriorate more than expected and financial markets stabilize. A sober assessment of risks must take account of the possibility of protracted financial market instability together with weakening housing prices, volatile and high energy prices, continued dollar depreciation, and elevated inflation measures following from the recent upticks we’ve seen.”
Although he expects inflation to moderate, Lockhart noted, “I’m troubled by the elevated level of inflation.”