Interest rates should increase gradually, Federal Reserve Bank of Atlanta President and CEO Dennis Lockhart said Monday.
"Based on our changing assessment of potential growth, we have lowered our estimate of the neutral rate, and along with it, the anticipated path to this terminal point, Lockhart told the Atlanta Rotary Club, according to prepared text released by the Fed. "Knowing what I know today, I continue to expect a gradual pace of interest rate increases."
He looked back to when he was named president of the Atlanta Fed almost 10 years ago, with a 4.5% jobless rate. 2.5% inflation and the fed fund rate target at 5.25%, compared at 0.50% to 0.75% today.
Lockhart said this is possible because, "While the economy has enjoyed cyclical recovery, some underlying fundamentals have been restraining the pace of growth. Most prominent among them are productivity, business investment, and labor force trends."
Going forward, he expects 2% GDP growth for the next three years, reaching 2% this year or next. He noted he has not accounted for "fiscal stimulus and regulatory change. … Without details, I consider it too early to estimate the effect of these policy changes."
Overall, the economy, he said, "is well positioned for moderate growth and steadily improving conditions. It's less certain that the economy is positioned for a breakout to markedly higher growth on a sustained basis."
