Fed's Lockhart says taper on track, urges patience on rates

BIRMINGHAM, Alabama Wed Feb 5, 2014 3:04pm EST

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

BIRMINGHAM, Alabama (Reuters) - The U.S. Federal Reserve will probably keep steadily dialing back its asset purchases and wind them down completely by late 2014 but should be patient on raising interest rates, a top U.S. central banker said on Wednesday.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said the year had begun with some momentum, despite the recent drop in stock markets, and further reductions in the pace of central bank asset purchases would be appropriate as long as the economy remained on track.

"Absent a marked adverse change in the outlook for the economy, I think it is reasonable to expect a progression of similar moves, with the asset purchase program completely wound down by the fourth quarter of the year," he said in remarks prepared for delivery to the Rotary Club of Birmingham.

The Fed has trimmed back its monthly bond purchases by $10 billion at each of its last two meetings, a pace many economists expect to continue for the rest of the year. Policymakers next meet in March for the second of eight scheduled meetings this year, when they will have to consider whether to cut purchases again from the current $65 billion a month.

But Lockhart, a centrist at the central bank who does not have a vote on monetary policy this year, urged patience when it came to lifting benchmark interest rates from their current near-zero level.

The Fed has said it will keep rates at rock bottom well past the time unemployment falls below 6.5 percent, especially if inflation remains below its 2 percent target. The jobless rate has fallen to 6.7 pct, with a new reading due on Friday.

"We could cross that threshold before long," he said, adding that this made how long to keep the Fed funds rate at 0-0.25 percent the key policy question.

He personally did not see any change in rates until well into 2015 and thought the Fed should wait for more clarity on the outlook for growth, jobs and inflation.

"We policymakers should be patient - not too quick to respond to zigs and zags in the data," he said.

"In my view, the (Federal Open Market) Committee should stay the course and let more clarity emerge on the sustainability of the recent pickup in growth, the path of inflation relative to the 2 percent target, and the nature of the employment situation."

Lockhart said numbers for the first three months of the year could be "not-so-great," noting that bad weather and an unwinding of the build-up in inventories, which boosted growth in late 2013, could hurt economic output and even jobs.

But he said overall, there were signs of rising confidence in the U.S. economic outlook.

"I think the fundamentals have improved, and the economy is likely to continue to perform in a higher gear over the full-year 2014," he said.

Lockhart, like other policymakers, said inflation expectations were well-anchored and he expected inflation to gradually accelerate towards the Fed's 2 percent target, hitting that level towards the end of 2015.

But, with a fair amount of slack still in the economy, he was "monitoring wage and price developments carefully for evidence that inflation will move back toward 2 percent."

(Reporting by Krista Hughes; Editing by Andrea Ricci)

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Comments (4)
I may be a bit jaded as I grow older but I remember Michael Milken. Does anyone else remember that Michael was charged with racketeering and securities fraud? Michael eventually copped a plea and plead guilty to lesser charges. He’s nevertheless a convicted felon. That’s OK in today’s world since he’s become a “philanthropist”. He’s been barred for life from securities trading by the SEC

I find it fascinating that federal reserve officials feel it appropriate to spend time at an institute that bears the name Milken.

Feb 05, 2014 2:19pm EST  --  Report as abuse
FreeChoice wrote:
Funny how everyone piles on the bandwagon saying the Q1 slump is connected to the tiny 13% reduction in the $Billions the FED is pumping. First, technically, this market was ripe for a correction. Second the 2013 TAX INCREASE EFFECT had everyone sell off in 2012 to avoid the significantly higher 2013 tax. What that essentially did however was create short-term-gains during 2013 which could not be sold until January 2014.

Feb 06, 2014 8:33am EST  --  Report as abuse
likesnews wrote:
Ohhh, I love magic tricks! The Fed is going to stop buying all debt, the reason they could pay next to no interest and just simply, wait for it, not pay higher interest!
That’s soooo good!

Feb 06, 2014 10:38pm EST  --  Report as abuse
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