Dennis Lockhart jokes that when he joined the Federal Reserve in March 2007, he thought it was going to be an easy job.
Within a year, he and his colleagues were having emergency meetings as the economy spiraled into a recession. "I've seen it all," said Lockhart, the president of the Federal Reserve Bank of Atlanta.
Lockhart and the other members of the Federal Open Market Committee voted earlier this month to keep federal interest rates unchanged, surprising some analysts. He said there are more positive signs lately, including a slow rise in consumer spending and a falling unemployment rate — the domestic economy "is plugging along quite decently" — but overseas volatility and sluggish inflation have made the picture harder to read.
Still, he expects the vote to go differently later this year. Lockhart said the committee could start the slow climb to normalized interest rates at the committee's October or December meeting, as long as the global financial picture "settles a bit."
Lockhart talked to the Advertiser last week about his concerns, the impact of falling gas prices and what's ahead for the economy.
If the decision is made to start the process of raising interest rates, what happens from there?
I believe that the path of interest rate increases will be gradual, for a number of reasons. The environment in which the U.S. economy operates, on a global basis, is still rather weak. Some of the market turmoil that we've seen over the last three or four weeks is related to China's (economy) slowing down, for example. Because I do believe there's still some slack in the labor market, I think (it would be) a posture in the central bank of being accommodative — meaning it is a policy that is still meant to be stimulative. It would be some time before we get to what economists would say is a neutral rate, meaning it's neither stimulative nor tightening. I can't tell you exactly what "gradual" means. We meet eight times a year. Probably, it means we would not make an interest rate increase at every meeting. We haven't worked that out yet. That in itself will depend on how the economy's performing.
You mentioned that there's a lot of volatility in the markets, especially overseas. Some analysts say overseas oil producers are trying to drive down prices to put pressure on domestic producers…
I've heard that theory, that what they're trying to do is drive out the marginal fracking players in the oil patch.
How do you read those kinds of signs and determine when is the best time to move forward with an interest rate increase?
The equation is always, what is the risk to the broad, real economy? We're not focused on helping Wall Street. We don't have anything against Wall Street, but it's the overall economy that matters. The oil price question has been one in which we expected short-term employment drag coming out of layoffs in the oil and gas industry, and a somewhat longer-term kick to the consumption from people having more disposable income. The consumer activity is pretty robust at the moment. But when we talk to retailers, we hear that just now they're seeing the benefits of lower gasoline prices. It has taken awhile.
And what if they suddenly jump back up over $ 3?
Well, I think consumers are cautious. They don't want to spend a lot of money if they think something might turn around and bite them. So they wait a while to make sure it's for real, but now they're believing that lower gasoline prices are for real so they're prepared to spend. Something important to Montgomery is the automobile industry. Automobile sales are just going strong, and all of the manufacturers in the United States, I'm told, are going all out. When we drove in from Atlanta it looked like the Kia plant was in its third shift, and the parking lot was completely full at 9 o'clock at night. That may be an indication that manufacturers are doing everything they can to meet demand. We have a consumer-led economy, so it's important that consumers be confident enough in the economy to spend some money.
Do you see any kind of potential for another quick nose dive into a mini-recession?
I really don't. I think the economy is resilient at the moment. That resilience has been built up over years. It's a better balanced economy. The financial system is stronger, less likely to produce a shock of some kind. You never say never because we live in a complex world and something can happen, but I think the most realistic forecast is that we will continue to grow at a modest pace. It'll be between 2 and 3 percent, and that's a respectable rate. I see that for the next two or three years at least.
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