Bold official action to tackle the U.S. recession will restore growth later this year but the Federal Reserve can still do more if a recovery fails to appear, a top Fed policy-maker said on Thursday.
If forecasts of improvement don't materialize, the Fed is not without capacity to act, even with the fed funds rate at its lower bound, Federal Reserve Bank of Atlanta President Dennis Lockhart told the Birmingham Regional Chamber of Commerce in prepared remarks.
The Fed has cut interest rates almost to zero and pumped hundreds of billions of dollars into financial markets to ease a yearlong recession, alongside a massive $787 billion government stimulus package and $700 billion bank bailout.
Lockhart said the authorities had gotten the message about the need for aggressive action, but cautioned that any additional measures ought to be measured and convincing.
We've reached a point where incremental responses must proceed to something more comprehensive, scaled, and coherent, said Lockhart, who is a voting member of the Fed's policy-setting committee this year.
The Fed on Wednesday sharply lowered its forecast for growth this year and warned unemployment could climb to nearly 9 percent, from 7.6 percent in January.
It was not all bad news, and Lockhart noted lower mortgage rates were starting to aid home sales while stronger-than-expected January retail sales were encouraging.
On the other hand, Lockhart said he was watching developments in emerging markets and domestic commercial real estate closely for evidence of problems.
Policy-makers have taken and will soon implement unprecedented measures to restore financial stability and economic growth, he said.
In my view, the diagnosis is substantially correct and the actions targeted on discrete aspects of the overall problem constitute an appropriately comprehensive approach.
(Reporting by Alister Bull, Editing by Andrea Ricci)