Fed's Lockhart says monetary policy not a panacea

Atlanta Tue Aug 21, 2012 10:30am EDT

Dennis Lockhart, President, Federal Reserve Bank of Atlanta, takes part in a panel discussion titled ''Twist and Shout: The Limits of U.S. Monetary Policy'' at the Milken Institute Global Conference in Beverly Hills, California May 1, 2012. REUTERS/Danny Moloshok

Dennis Lockhart, President, Federal Reserve Bank of Atlanta, takes part in a panel discussion titled ''Twist and Shout: The Limits of U.S. Monetary Policy'' at the Milken Institute Global Conference in Beverly Hills, California May 1, 2012.

Credit: Reuters/Danny Moloshok

Atlanta (Reuters) - The economic recovery has been disappointing but monetary policy may not be capable of solving many current challenges, Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday.

Lockhart told reporters he had not yet made up his mind on whether further monetary easing is warranted.

"It's a cost-benefit calculation to consider more monetary stimulus and someone like me has to do his best to really carefully weigh the costs and benefits," Lockhart told reporters after a speech. "I'm not finished with (that) process."

The U.S. economy expanded just 1.5 percent in the second quarter, while unemployment rose in July to 8.3 percent.

Lockhart said recent improvement in the job market has slowed, although a long-stagnant housing sector appeared to be showing new signs of life.

In a speech focused primarily on Latin America, Lockhart said he worries monetary policymakers might leave policy too loose for too long without having the desired effect.

"There is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms that involve making tough choices about the allocation of public resources," Lockhart told the Latin American Chamber of Commerce and the World Affairs Council.

"Monetary policy can exert a powerful positive influence on an economy, but as (Fed) Chairman (Ben) Bernanke has pointed out, monetary policy is not a panacea."

Central bank officials gather in Jackson Hole, Wyoming, late next week for an annual conference on monetary policy. Many analysts believe Bernanke will use a speech there to lay out a third round of quantitative easing via bond buys, or QE3.

The central bank's next policy meeting is on September 12-13.

In response to the financial crisis, the Fed cut official rates to zero and more than tripled the size of its balance sheet to $2.8 trillion.

(Reporting by Pedro Nicolaci da Costa; Editing by Neil Stempleman)

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