ATLANTA Atlanta Federal Reserve Bank President Dennis Lockhart said slowing U.S. economic growth, a stagnating labor market, and a belief that monetary policy could boost jobs convinced him to throw his weight behind the central bank's latest stimulus.
In the leadup to last week's Federal Open Market Committee's policy meeting, Lockhart had said he was undecided on whether more easing was needed.
"I concluded that there was indeed a call to action falling out of the discouraging conditions of slowing growth and still high unemployment with meager recent progress in bringing it down," Lockhart told the Institute of Internal Auditors on Friday.
U.S. unemployment registered 8.1 percent last month, and has stayed above 8 percent for more than three years.
Although there is still a debate raging over whether the root problems in the jobs market are beyond the power of the Fed, he said, "I have been persuaded that the problem is, to a significant enough extent, one of weak growth that can be ameliorated by prudent monetary policy actions."
The Fed last week embarked on a bold new effort to help a faltering recovery, buying $40 billion of mortgage backed securities each month and promising not to let up on asset purchases until the labor market improves substantially.
It also said it will keep rates low for a considerable period after the economy strengthens, much like - in the words of New York Fed Bank President William Dudley - pushing a stalled car even after it has been freed from the mud to make sure it continues to roll forward.
Interest rates will likely stay extraordinarily low until at least mid-2015, the Fed said. On Thursday one top Fed policymaker went farther: rates should stay low, Minneapolis Fed President Narayana Kocherlakota said, until unemployment reaches the near-normal level of 5.5 percent, as long as the outlook for inflation stays below 2.25 percent.
Lockhart, unlike Kocherlakota, has a vote on the Fed's policy-setting panel this year, did not agree.
"I am not so sure that it will not be appropriate to begin the process of tightening and normalization before we get to what we would consider to be full employment," Lockhart told reporters after the speech.
An unemployment rate of 7 percent to 7.5 percent, "and possibly lower," would be a sign of good progress, he said.
And if things do not improve, the Fed could still do more, Lockhart said on Friday, citing the Fed's statement from last week.
"I think you can infer that that's a reference to possibly a renewal of Treasury purchases," he said. "Should that be done now? No, not now."
Although the new program carries some risk of sparking inflation, he told the audience after his speech, those risks are "manageable," and he is confident the Fed will know the appropriate moment to start raising historically low rates - near zero since December 2008 - to normal.
The Fed's decision to buy mortgage-backed securities in its latest round of stimulus, known as quantitative easing, was well-timed because the housing market has begun to improve, reducing one headwind to economic growth, he said.
If U.S. lawmakers effectively deal with the so-called fiscal cliff - the raft of tax increases and spending decreases slated to go into effect at the end of this year-- and if Europe's debt crisis abates, two more headwinds will also be softened, he said.
Still, he said, monetary policy has its limits.
"I am not expecting miracles," he said.