The economy this year will likely make progress -- fast enough to modestly trim unemployment but still weak enough to keep the Federal Reserve fretting -- the president of the Atlanta Fed said Monday.
A deepening crisis in Europe or a spike in oil prices could upend that forecast, Dennis Lockhart said during a talk to the Atlanta Rotary.
The economy will grow 2.5 percent to 3 percent “if there are no surprises,” he said.
Some economists have argued that “following severe financial crises, it takes a number of years for an economy to return to full health,” Lockhart said. “This view seems to be proving out.”
As the nation slid into deep recession in 2008, the national jobless rate climbed to 10.1 percent -- and higher in Georgia. The Fed shoved short-term interest rates virtually to zero and kept them there hoping to spur growth and hiring by making it cheap to borrow. The Fed also purchased tens of billions of dollars in bonds.
The national rate has dipped to 8.5 percent -- again, it's higher in Georgia -- but that does not count millions of workers who have given up the job search.
Like the presidents of the other regional Feds, Lockhart’s statements are often tracked by investors and analysts, perhaps even more so this year because Lockhart is now a voting member of the Fed’s Open Market Committee. That group decides monetary policy that affects interest rates.
Some analysts -- and Fed officials -- argue that the Fed will spark inflation if it does not lift rates. But Lockhart said Monday that he takes comfort from official measures that show inflation is still low. He said he has “an open mind” about further efforts to stimulate expansion.
Even barring a surprise, the economy faces a series of burdens, Lockhart said. For instance, consumer spending is hampered by concern about taking on debt -- a worry intensified by the hard fall in home values.
But the economy may also have changed, he said.
Researchers at the Atlanta Fed have sifted data that seem to show a drop in the number of startups, Lockhart said. That alone would signal trouble since new business is a critical source of hiring: Startups account for about 10 percent of all firms but almost 20 percent of new jobs each year, he said.
An ebbing wave of startups would be a bad sign by itself. But data also show fewer employees per establishment, he said.
Said Lockhart: “We could be looking at a double whammy of sorts.”
About the Author
