Federal Reserve Bank of Atlanta President Dennis Lockhart, who has backed the Fed’s $85 billion in monthly bond purchases, said U.S. monetary policy should focus on creating a more dynamic economy after a recent cooling in growth.
“Recently there appears to have been some slowing” in job creation, Lockhart, who next votes on policy in 2015, said today in New York. Payroll gains have averaged just 148,000 over the past three months, he said.
Lockhart’s comments help explain why the Federal Open Market Committee last week unexpectedly refrained from slowing its $85 billion monthly pace of bond buying, saying it needs additional evidence of sustained improvement in the economy. The decision sent the Standard & Poor’s 500 Index (CME:SPZ13) soaring to a record close and pushed down the yield on the 10-Year Treasury note (CBOT:ZNZ13) the most since November.
“Monetary policy can help deliver appropriately favorable interest rate conditions that can promote a faster economic recovery, always in a context of low and stable inflation,” Lockhart said today to the Blouin Creative Leadership Summit.
New York Fed President William C. Dudley said policy makers must “forcefully” push against economic headwinds as the U.S. has yet to show “any meaningful pickup” in momentum.
“The economy still needs the support of a very accommodative monetary policy,” Dudley, who is vice chairman of the FOMC, said today in a speech in New York. “Improving economic fundamentals versus fiscal drag and somewhat tighter financial conditions are pulling the economy in opposite directions, roughly canceling each other.”
Treasuries rose, pushing the yield on the 10-year note down three basis points, or 0.03 percentage point, to 2.7% at 11:28 a.m. in New York. The Standard & Poor’s 500 Index fell 0.6% to 1,699.26.
Lockhart said in response to a question after his speech that he is concerned about the drag on growth caused by the shrinking labor force participation rate, which fell last month to a 35-year low of 63.2%. The decline is caused by demographic trends such as retirements by the baby boomer generation and economic factors such as discouraged workers who “simply give up” and drop out of the workforce, he said.
“Lower participation may mean somewhat lower potential for the economy,” he said. “That’s concerning.”
Lockhart also said he hears anecdotal evidence that internal migration has slowed as Americans are less likely to move for new jobs. Oil and gas firms in the Atlanta district, which includes southern Louisiana, say they have “tons of unfilled jobs” for those willing to move there, Lockhart said.
Lockhart devoted most of his speech looking at whether the U.S. economy has become less dynamic in recent years with, for example, less churning in the labor market and fewer new startups, with fewer jobs.
“There has been a general atmosphere of uncertainty in the wake of the financial crisis and recession,” Lockhart said. “Reduced access to start-up financing and tighter credit have constrained the flow of new firms. Until recently the collapse in real estate values all but extinguished an important source of start-up financing for many entrepreneurs.”
Lockhart, 66, is a former Georgetown University professor who has led the Atlanta Fed since 2007. The reserve bank’s district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.