Fed's Lockhart says that more Quantitative Easing still needed but remains cautiously optimistic

Lockhart says that QE2 is still required because employment is nowhere near what it should be.  Via WSJ:

“There are definitely hopeful signs of sustained recovery in 2011,” and “much of the strength in the fourth quarter of last year has carried over into 2011,” and will prove sustainable, Federal Reserve Bank of Atlanta President Dennis Lockhart said. “Progress is real, but fitful, and support of accommodative Fed policy is still required,” he said.

Atlanta Fed President Dennis LockhartLockhart spoke before a gathering of students at the Miami Dade College. His comments came from the text of the address. The central banker spoke in the wake of last week’s gathering of the interest-ate setting Federal Open Market Committee. Then, the FOMC stayed the course and continued forward with its plan to buy $600 billion in longer-dated Treasurys by the summer, as it was expected to do.

The central banker was largely upbeat in his comments, although he said there are still a number of factors that could derail the rebound. “The appropriate outlook at this juncture is one of cautious optimism, avoiding overstatement of the likely speed of improvement,” Lockhart said.

The official said “employment is nowhere near acceptable levels” and is being held back by too slow rates of growth, high rates of productivity, and “slower business formation.” But Lockhart also it was normal for hiring to pick up more slowly than the rest of the economy, and he said “I believe the employment situation will improve” as the year progresses.

Lockhart said inflation is at “lower than desired rates.” But when it comes to the threat of deflation, “this concern has abated and the rate of inflation seems to have stabilized.” He noted worries about higher prices are being fueled by rising commodity and gasoline prices, even though these gains have not moved into underlying price trends. “Through 2011 and 2012, I expect gradual firming of underlying inflation pressures from current very low levels to healthier levels,” the official said.

The main threats to growth as the year moves forward are continued house price weakness, which “could reemerge as a major drag on consumer spending over and above the direct effect of slow construction activity.” Troubled state and local government finance remains an issue, as could new troubles in European government finance.


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