EconSouth (Fourth Quarter 2008)

Research Notes and News

Research Notes and News highlights recently published research as well as other news from the Federal Reserve Bank of Atlanta.

Atlanta Fed president says U.S. economy needs rebounds in housing, confidence
Atlanta Fed President Dennis Lockhart said the country is enduring "a long and difficult adjustment process" that will result in continued weak economic performance for much of 2009.

During a Dec. 4 speech to the U.S. Association of Energy Economics Annual Meeting in New Orleans, Lockhart said the following conditions need to be in place for a recovery to take hold: housing sector and house price stabilization, along with a return of consumer confidence and credit confidence.

Though the Federal Reserve has left itself little room to lower the federal funds rate [set at a range of 0 percent to 0.25 percent as of Dec. 16], the Fed has other ways it can help the economy through this difficult period, Lockhart said. The Fed can provide liquidity through programs that have been expanded significantly in recent months and can continue coordinating policy actions with other central banks.

Spillover from financial turmoil into the broader economy has produced various effects, notably periodic and acute problems in credit markets, he noted. "The Fed and other authorities have stepped in as appropriate to help address issues and have worked to dampen the effects of these problems along the way," he said. "I am fully confident that we have both the means and the will to continue to do so as events require."

As for the Southeast's short-term outlook, Lockhart expects employment to weaken further, house prices and household wealth to probably continue to decrease, and personal consumption likely to decline, at least for the next few months.

Similar problems are affecting the entire world. Lockhart pointed out that the International Monetary Fund projects that growth in advanced economies will contract in 2009 for the first time since World War II. Growth for emerging economies also is expected to slow. He said that if current forecasts are close to accurate, the current quarter and the next couple are likely to be the worst.

"Policymakers have policy tools remaining to respond to unwelcome surprises," he said. "And the intrinsic resilience of the economy at its core, combined with the regenerative capacity of the financial system, will carry us through."