In a speech in Florida on Thursday, President and CEO of the Federal Reserve Bank of Atlanta Dennis Lockhart discussed what the country's current economic conditions suggest would be the appropriate path for monetary policy to take.
Speaking at the Palm Beach County Business Leaders luncheon, Lockhart painted a positive picture of economic conditions. He told the audience that the economy has made considerable improvements since the depths of the recession in 2009 and is starting to pick up steam in the last two years.
Lockhart estimated GDP growth for the rest of the year between 2.5 and 3 percent, assuming the first quarter economic slowdown passes.
The Federal Open Market Committee's decision to raise interest rates will depend on how much progress the labor market makes and on reasonable consumer confidence that inflation will rise up to the FOMC's 2 percent target.
“The Federal Open Market Committee has laid down two criteria to be met before we begin to raise interest rates,” Lockhart said. “They are further progress in labor markets and reasonable confidence that inflation will rise to the longer-run target of 2 percent. The FOMC has also emphasized that the decision will be data-dependent. I consider this an essential discipline around our decision making on this matter. To me, data dependency means there is no preconceived plan. Data dependency means the decision will be based on the best evidence we have of the reality and trajectory of the economy.”
Lockhart said before a monetary policy liftoff decision is made, he would like to see data that the desired outcomes are being achieved – but he said support for a monetary policy liftoff decision will be a judgment call. But in the big overall economic picture, he said, strength in one aspect of the economy may offset ambiguity in another area. But at the same time, the liftoff decision will be just the beginning of the process that leads to a normalized structure of interest rates.
“Once the initial decision to raise rates is made, attention will shift to the subsequent path of policy,” Lockhart said. “The process leading to a normalized structure of interest rates will just begin with the liftoff decision. This is a crucial point. Our policymaking is oriented to achieving the best outcomes in the broad economy. I see the interests of the Main Street economy as more aligned with an approach that thinks of liftoff and subsequent rate moves as a package.”
Lockhart said the rate path will likely be more predictable the more solid the data evidence is that underpines the liftoff.
“I think waiting a while longer improves the chances of seeing confirmation from incoming data that the economy is on the desired path,” he said. “I think it is highly desirable that the public sees an economic picture at the time of the liftoff decision that is consistent with the decision criteria the FOMC has set out. Ideally, coherence between data and decision would be clear to all.”