Atlanta Federal Reserve Bank President Dennis Lockhart Thursday night said a third straight month of disappointing jobs numbers would be cause for concern but cautioned against any overreaction in the financial markets.
The U.S. Bureau of Labor Statistics releases the February jobs report Friday, and Lockhart was asked by reporters, following a speech at Georgetown University, if a very low payrolls number would impact the Federal Open Market Committee’s assessment of the economy and its monthly asset purchase program.
“If we get a number below a 100,000 tomorrow that would be then three months of weak numbers and certainly that would be a concern,” Lockhart said. He is not a voter on the FOMC this year.
Lockhart stressed that in the context of what has happened to the economy so far this year, particularly the harsh winter, “My own view would be to not overreact because we’ve had some sort of anomalous things occur that have influenced the economy – certainly for the months of January and February.”
For now, “we’re prepared to interpret the soft data as significantly affected by the weather,” Lockhart said.
The unemployment rate is approaching the FOMC’s 6.5% threshold faster than expected and Lockhart said that mark “becomes irrelevant” once it is passed, “and in all likelihood we need to update our forward guidance.”
How this is done and the timing of it will be decided by the committee, he added. “My preference is for a framework statement that is more qualitative in nature,” Lockhart said.
Asked by MNI if he would still support raising rates by the time the second half of 2015 rolls around if employment is not back to a satisfactory level, Lockhart said:
“If I think we are short of our mandates in a material way, still, and the conditions are such that we don’t have other reasons – financial stability or whatever – to constrain policy then I think at that time I would size it up and could be supportive of continuing (very low interest rates.”
As for the current low run rate of inflation, Lockhart was asked at what point would this become of greater concern to the Fed.
“If we saw in the medium term the lack of progress towards the 2% objective – and by medium term let us say through the end of 2015, to give you just a time horizon, and there was no progress in seeing inflation converge to our target, I’m at that point certainly beginning to be concerned,” he said.
His outlook is for growth to pick up, which – if sustained into 2015 – would see a rise in the rate of price increases. “And if that did not materialize in that timeframe then I think it would certainly be a time to revisit our thinking,” Lockhart added.
Asked about the future of the Fed’s reinvesting of payments from its holdings of mortgage-backed securities, Lockhart said that issue at this stage “is not well thought out or decided.”
However, “the reinvestment question has to be on the table at some point,” he continued, noting it is one of the early steps in the Fed’s normalization of its balance sheet.
“But I don’t have a clear sense of the timing in my own mind,” Lockhart said.