For immediate release: Jan. 7, 2008
ATLANTA, Ga. — Dennis P. Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, today said his base outlook is for a weak first half of 2008—but one with modest growth—with gradual improvement later in the year. Lockhart acknowledged that evidence of slowing economic activity has been mounting at a juncture of heightened uncertainty.
In his remarks to the Rotary Club of Atlanta, Lockhart said "looking to 2008, I believe the pivotal question—the central uncertainty—is the extent of current and future spillover from housing and financial markets to the general economy." The dynamics he is watching are, first, the effect of dropping house prices on the consumer and the effect this drop could have on retail sales and other personal expenditures. He also is looking at the effect of financial market distress on credit availability and, in turn, on business investment, general business activity, and employment.
Lockhart said that for monetary policymakers the overriding concern must be the broad health and balance of the general economy. In his view, recent Federal Reserve policy moves "appropriately processed information (both data and anecdotes) that painted a mixed but slowing picture." He acknowledged that "at this juncture, the times present even greater uncertainty than usual. The negatives in our economy may be gaining momentum. I think these circumstances call for policymakers tobe prepared to respond pragmatically to whatever developments arise."
Lockhart also said that this year's economic performance hinges on how financial markets deal with their problems. He described modern financial markets as a global intricate network of informed trust. "Stabilization will proceed from clearing up the information deficit and restoring well-informed trust in counterparties and confidence in the system overall," he said.
Lockhart believes that the Federal Reserve and other central banks have also worked to help address financial market illiquidity issues by providing liquidity when and where it has been needed. In this discussion, he mentioned the Federal Reserve's Term Auction Facility, announced in December, which provides depository institutions a facility for borrowing money from the Fed on a fully collateralized basis. He has been "encouraged by the early returns on these auctions and other efforts by central banks in Europe to keep markets functioning."
A transcript of Lockhart's remarks is available.
The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which encompasses Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee. As part of the nation's central banking system, the Atlanta Fed participates in setting national monetary policy, supervises numerous commercial banks and provides a variety of financial services to depository institutions and the U.S. government.