Wednesday, September 12, 2007

Lockhart joins the Hawks

On Monday, Atlanta Fed President Dennis Lockhart gave a repeat of his Sept 6 speech: After The Feast. Lockhart is a bit of an unknown quantity, having only joined the Fed in March. He's only given one previous speech (Competitive Pressures and Workforce Adaptability), which covered local issues in the Atlanta district.

He lays out his views though in this current speech, coming down firmly on the side of the hawks. Here are the money quotes:

In my view current readings of inflation represent progress, but not victory. I would like to see inflation sustained at a somewhat lower rate—with emphasis on "sustained."

If inflation is allowed to accelerate, bringing it back down will be costly and painful. High and unstable inflation can distort economic decision making and—once ratified by public expectations—is difficult to reverse. By contrast, low and stable inflation fosters an economy that's conducive to rational business activity and resistant to exogenous shocks....

Although I believe that Fed intervention is appropriate if markets are clearly not working properly, I am aware of the potential pitfalls of such interventions. Caution may cause some observers to argue that the central bank is insufficiently preemptive in its actions. But I believe the Fed's longer-term objectives are well served by a deliberate and measured response to financial market turbulence. Such a response should distinguish, as much as possible, between liquidity actions aimed at keeping markets orderly and monetary actions aimed at cushioning the economy from the impact of financial market instability.

Lockhart, however, doesn't have a vote on the FOMC until 2009.

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