By Pedro da Costa
Nov 16 The Federal Reserve should keep
stimulating the U.S. economy even if looming budget disputes are
favorably resolved and despite hints of improvement in
employment, Atlanta Fed President Dennis Lockhart said on
The Fed announced a third, open-ended round of asset
purchases in September that it says will continue until there is
a substantial turnaround in the labor market.
"I expect that continued aggressive use of balance sheet
monetary tools will be appropriate and justified by economic
conditions for some time even if fiscal cliff issues are
properly addressed," Lockhart told University of Virginia
"I hold to this view even though further growth of the Fed's
balance sheet raises concerns of longer-term unintended
The U.S. labor market has provided some hopeful signs in
recent months, but is far from full health, Lokchart said.
He expects the economy to grow only modestly above a 2
percent trend, adding that his forecast did not take into
account the downside risks posed by the $600 billion "fiscal
cliff" of expiring tax cuts and spending reductions set to take
hold early next year.
U.S. gross domestic product expanded 2 percent in the third
quarter, but there are worries that flagging business investment
and Europe's worsening recession could lead to another soft
Industrial output retreated in October, although the decline
was in large part due to superstorm Sandy and its devastating
impact on the U.S. East Coast.
"I have supported with my votes each of the FOMC decisions
made this past year. I think that monetary policy is
appropriately calibrated to give the U.S. economy its best shot
at ongoing, or even accelerating, growth. A sustainable fiscal
strategy would provide necessary further support to that
process," Lockhart said.
However, he warned against any resolutions to the budget
process that curtail an already fragile expansion.
"The chosen solutions should support continued growth. Any
approach that compromises the continuation of the economic
recovery will be, in my view, very damaging," he said.
It was an unusually blunt statement from a Fed official who
most often refrains from making statements on fiscal matters.
And he warned he would do so at the very start of his
"Today I will venture more than usual into fiscal territory
because, given the threats to the broad economy growing out of
immediate fiscal concerns. It is unavoidable," he said.
In response to the financial crisis and recession of
2007-2009, the Fed slashed interest rates down to effectively
zero and more than tripled its balance sheet to around $2.9
Some analysts worry that the effectiveness of asset
purchases have diminished with time, while others fear
quantitative easing is boosting asset prices without doing much
for the real economy.