Fed’s Dennis Lockhart: Bond Buying May Be Needed into 2014

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Atlanta Federal Reserve Bank President Dennis Lockhart said the Fed will probably need to strengthen the U.S. labor market by pressing on with asset purchases later into this year or into 2014.

“The decision to curtail asset purchases ought to be forward-looking and, in my judgment, that point could come later this year or early next year without harm to the momentum of the economy,” Lockhart said Tuesday in a speech in Birmingham, Ala.

Lockhart, who doesn’t vote on monetary policy this year, has supported the central bank’s monthly purchases of $85 billion in Treasuries and mortgage-backed securities to reduce 7.7% unemployment. Chairman Ben Bernanke said last month the Fed would alter the size of its monthly buying in response to changes in the job market, including wages, jobless claims and payrolls.

“There are encouraging developments in the economy, to be sure, but the evidence of sustainable momentum that will deliver ‘substantial improvement in the outlook for the labor market’ is not yet conclusive,’’ Lockhart said in the text of remarks to the Kiwanis Club of Birmingham, citing criteria used by the Federal Open Market Committee.

“I favor a wait and watch mode for the time being,” he said. “Several more months of positive data—especially in a range of employment data—would give me confidence that the economy has real traction and is unlikely to backslide.”

The Atlanta Fed chief said his outlook is for “continued moderate growth.” Inflation has been running close to the Fed’s 2% rate, with some measures below it, he said.

While some economists estimate first quarter growth will be around a 3.5% annual rate, that pace reflects a rebound from a subpar fourth quarter and can’t be sustained for the full year, Lockhart said to reporters after the speech. He forecasts economic growth this year ranging between 2% and 2.5%.

Lockhart said it’s hard to pinpoint the impact of asset purchases on the economy, while estimating the third round of bond buying has pushed down Treasury note yields by about 0.2 percentage point.

Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi and Tennessee.