The Federal Open Market Committee will continue to taper throughout the year, with asset purchases finished by the fourth quarter, Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday.
"As long as the outlook remains solid and does not deviate dramatically from the path we believe it's on, I would expect the tapering of asset purchases to continue over the balance of the year," Lockhart said in prepared remarks delivered at Mercer University in Georgia. "I expect the asset purchase program to be completely wound down by the fourth quarter of this year."
Monetary policy will stay "highly accommodative for some time," and the 6.5% unemployment rate threshold will be breached long before the FOMC increases the federal funds rate. He is "comfortable" with expectations of liftoff - the first increase in the policy interest rate -- in the second half of 2015.
Lockhart stressed the importance of forward guidance. "I would argue that under the current circumstances, forward guidance about the direction of rate policy is more than just added commentary; it is a policy tool itself," he said. "And for the period ahead-the next couple of years at least-forward guidance may be the lead policy tool, arguably the most potent method we have for influencing financial conditions and economic results."
GDP will grow 2.5% to 3% this year, he predicted, a pace he called "optimistic." However, "substantial gaps exist between where we are and where we want or ought to be economically," Lockhart said.
Inflation, which he pegged at "around 1%," is about half of what the FOMC would like. Labor markets have "a qualitative weakness underlying the quantitative progress."
