Lockhart Sees Recovery Signs, Fragile Economy

CHATTANOOGA, Tenn. — Atlanta Federal Reserve Bank president Dennis Lockhart cited increasing signs of economic recovery yesterday, but also pointed to downside risks and vulnerabilities and gave no indication he thinks the Fed should start tightening monetary policy anytime soon.

On the contrary, Lockhart, a voting member of the Fed’s policymaking Federal Open Market Committee, said “an extended period” of low interest rates is needed, given the outlook for “frustratingly slow” economic growth and “protracted” high unemployment.

Lockhart, in remarks prepared for delivery to the Chattanooga Area Chamber of Commerce, said the Fed must guard against tightening monetary policy too soon, lest it “snuff out” recovery, or too late, lest it fuel inflation.

“Evidence is mounting that the worst of the economic downturn is behind us,” he said. “Overall, the U.S. economy is improving but still fragile. Stabilization has taken hold, and the beginning stages of recovery are under way.”

Lockhart said consumer spending “has been dampened by housing market weakness and concerns about employment” and that firms remain “quite cautious” about investing and hiring. But “the speed of falloff appears to be slowing,” he said.

“Recent improvements in the financial sector are supporting economic stabilization,” he said, but “financial conditions are still vulnerable, and the flow of credit remains weak.”

Before Lockhart spoke, fresh signs of recovery came from the Commerce Department in the form of bigger-than-expected July increases in durable goods orders and new home sales.

However, Lockhart said: “Commercial real estate weakness poses a serious potential risk to the economic recovery and to the banking system.”

— Market News International

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