Dennis Lockhart, President of the Atlanta Federal Reserve Bank, spoke to a Georgia audience today and explained some of his thinking leading to the recent FOMC decision to begin purchasing agency mortgage-backed securities. Lockhart was one of 11 FOMC members to vote in favor of the new asset purchases.
Lockhart said he was guided by the numbers:
For most of the first half of this year, I held to a view on the medium-term outlook that predicted continuing growth at a modest pace, a gradual decline in unemployment, and inflation staying close to the FOMC’s 2 percent target. Recent data have called even this modest growth scenario into question. … [T]he accumulation of data through August suggested a slowdown from the already anemic pace of growth and a stagnating labor market.
Lockhart, something of an inflation hawk in the past, changed his mind however:
[T]he country’s employment situation is complex, with many factors at work to produce the static condition we now seem to face. But I have been persuaded that the problem is, to a significant enough extent, one of weak growth that can be ameliorated by prudent monetary policy actions. A stronger overall pace of recovery is central to improvement in the labor market. As I approached the FOMC meeting of last week, I concluded that there was indeed a call to action falling out of the discouraging conditions of slowing growth and still-high unemployment with meager recent progress in bringing it down.
Lockhart also noted that he is “not expecting miracles” from the new Fed policy. He’s not the only one.