Atlanta Federal Reserve CEO Dennis Lockhart says U.S. economy will improve — slightly — in 2014
By Maria Saporta
The nation’s economy should grow at a slightly faster rate in 2014 than it did in 2013, according to Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta.
Lockhart, who spoke only from his viewpoint and not on behalf of the Federal Reserve, gave his annual economic outlook speech Monday to the Rotary Club of Atlanta.
As he had foreseen last year, the gross domestic product (GDP) grew by estimated 2.5 percent in 2013 — with a particularly strong showing in the third quarter.
For 2014, Lockhart bumped up that number to a range of between 2.5 percent to 3 percent growth in GDP — and he wouldn’t be surprised if year-end results were “at the upper end of that range,” he added.
“By most measures, the economy has made significant progress since the recession ended,” Lockhart told the capacity Rotary audience. “Financial markets have stabilized, and the banking sector overall is in a much healthier state. Housing has made a partial comeback. Housing starts are up significantly from recession lows. Housing prices are rising, and foreclosures are down.”
Lockhart also said that the corporate sector also is in “solid financial shape” with lower debt and ample cash available for investment. Manufacturing, including motor vehicle assemblies, is making a comeback.
But Lockhart spent quite a bit of his time talking about unemployment and the low level of inflation.
The decline of the unemployment rate to 6.7 percent is welcome news, especially when it had reached the level of almost 10 percent in 2009. But that number is a bit misleading. It does not take into account people who say they are willing to work but are not currently looking — the marginally attached workers.
Labor force participation also is down in the prime age group of people between 25 and 54. Then there is the issue of underemployment — many Americas working fewer hours than they would like because they can only get part-time work.
“To sum up, these comparisons of employment data suggest that the labor market is not as healthy as the improved unemployment rate might indicate,” Lockhart said. “The unemployment rate drop may overstate progress achieved.”
As to inflation, the Federal Reserve’s Open Market Committee has set a longer-term objective of 2 percent.
“Rising inflation is not currently a problem,” he said. “I see inflation rates moving gradually toward that objective as economic growth grains momentum.”
Lockhart said that over the past year, inflation has averaged only 0.9 percent, showing that the country has been in a deflationary mode for about two years. That could pose a risk to economic performance. But so far, the Federal Reserve expects the economy to gather momentum and for inflation to approach the 2 percent objective.
“I talk with a lot of business people across the Southeast. Very few claim much pricing power at the moment,” Lockhart said. “There are no signs of disinflationary expectations being priced in. This gives me some confidence that inflation will firm.”
In closing, Lockhart described 2014 as a “year of transition.” He talked about the transition of leadership at the Federal Reserve Bank — from Chairman Ben Bernanke to Chair Janet Yellen on Feb. 1.
“I do not expect the leadership change to bring a change in basic policy direction, however,” Lockhart said. “And the economy itself seems poised to transition to better conditions.”
During the question-and-answer period, Lockhart was asked to comment on the stock market, which has reached record levels in the past several months.
“One of the stupidest things a federal banker could do would be to comment on the stock market,” Lockhart said jokingly. “A natural question is whether this is a bubble. I don’t see it as a bubble. We are watching very closely to make sure it doesn’t get into bubble territory.”