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 In an interview, Atlanta Fed President Dennis Lockhart said flatly
that the central bank should keep reducing its policy accommodation
even if the February jobs report on Friday falls short of
expectations, making for three straight months of sub-par hiring in
the world's largest economy.
"In my mind, unless we really fall off track in the economy pretty
dramatically, I think the tapering program should proceed," Lockhart
told Reuters, adding that he has "modest" expectations for the
government's nonfarm payrolls report.
The Labor Department is expected to report on Friday that U.S.
businesses added 149,000 jobs in February and the unemployment rate
remained unchanged at 6.6 percent, according to a Reuters survey of
economists.
That would be an improvement from the prior two months, in which the
economy added fewer than 200,000 jobs combined. A weak labor market,
along with soft manufacturing and retail sales data, has signaled
that the U.S. economic recovery lost some momentum in the early part
of 2014.
Lockhart attributed the weak data to the severe winter weather that
has gripped much of the United States and issued a word of caution
to anyone expecting the Fed to abruptly back off a plan to wind down
its bond purchases by later this year.
"Looking at this as a quarter-by-quarter measurement of economic
activity and strength, we'll be into the second quarter before we
can even complete the call on the first quarter," he said before
giving a lecture at Georgetown University, where he taught
international business before taking the reins at the Atlanta Fed
seven years ago.
"And we'll certainly be in the second quarter before we can become
confident that it was an anomaly as a quarter because of weather,"
he added.
In his lecture, Lockhart said activity could tick up in the second
quarter of the year and that he had an optimistic view of the
outlook, tipping growth to move back toward a 3 percent annual rate
after a soft first quarter.
Answering questions later, he said it would be a concern for
policymakers if non-farm payrolls were to come in below 100,000, but
added that he personally would not over-react to a low number.
Lockhart, who does not have a vote this year on the Fed's
policy-setting panel but participates in its discussions, is
considered to be near the center of the central bank's policy
spectrum, and his comments often reflect the views of the core
decision-makers.
EYEING ASSET BUBBLES, UKRAINE FALLOUT
The Fed has kept interest rates near zero since 2008 and has bought
trillions of dollars of Treasuries and mortgage-backed securities to
lower borrowing costs and boost investment and hiring following the
brutal recession.
But as the economy and labor markets showed improvement late last
year, the central bank began in January to reduce its monthly bond
purchases and signaled that it plans to phase them out by late in
the year.
Monthly purchases now total $65 billion, down from an initial $85
billion, and many economists expect the Fed to continue to trim the
pace by $10 billion every six weeks or so.
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Lockhart acknowledged that there could be conditions under which the
Fed may need to pause or even ramp the bond-buying back up, "but I
think the bar is very high ... Certainly, as the balance sheet gets
larger the potential costs grow, so I'm not ignoring that, but I
don't think the tool should be taken off the table entirely."
Turning to the Fed's other main tool for stimulating hiring and
inflation, the promise of low interest rates, Lockhart said he
believes the Fed should soon revamp its guidance on how long it will
keep rates low. The central bank has for over a year vowed to keep
rates near zero until unemployment falls to at least 6.5 percent.
"I would prefer a bit more of a qualitative framework ... that
doesn't necessarily tie us to one number," Lockhart said. "I think
the closer we get to 6.5 percent, the more it's necessary to refresh
the guidance."
He added that he was "very satisfied" that the public's expectations
for the first rate increase align with his own, and repeated that he
expects that to come in the second half of next year.
"My preference would be to try to preserve the alignment we have now
and I don't think that requires dating and I don't think it requires
being overly specific," he said. "There's something to be said for
keeping it as straightforward as possible."
Meanwhile, the debate is growing within the Fed over whether
policymakers should stand ready to tighten to head off any financial
instabilities that might grow from all of its accommodative
policies, with Fed Chair Janet Yellen saying she would not rule it
out as a last resort.
But like many of his colleagues, Lockhart said monetary policy is
too "crude" of a tool to address possible asset-price bubbles in
particular financial markets or corners of the economy. "It's
probably a little bit too much of a blunt instrument for that," he
said.
Asked about the simmering crisis in Ukraine, where Russian forces
have effectively seized the country's Crimea region, Lockhart said
the Fed is watching for geopolitical, financial or economic fallout
that could hurt the U.S. economy.
"We live in a world in which things can change very rapidly," said
the former banker, who once worked in Lebanon, Saudi Arabia, Greece
and Iran.
"Events that are fairly distant geographically from this country can
spill over into this economy. You always have to remain vigilant to
anything that may turn into a problem."
(Additional reporting and writing by Ann
Saphir; editing by Paul Simao, Dan Grebler and Mohammad Zargham)
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