With recovery 'largely done,' Lockhart says Fed should step aside

Dennis Lockhart of the Atlanta Federal Reserve
Lucas Jackson | Reuters
Dennis Lockhart of the Atlanta Federal Reserve

Recovery from the economic crisis is "largely done," and officials should now turn to addressing longer-term issues like how to boost productivity, Atlanta Federal Reserve bank president Dennis Lockhart said on Monday.

The economy is near full employment, inflation is close to the Fed's two percent goal, and the United States appears locked in for steady growth of around 2 percent annually, said Lockhart, who is due to retire next month.

After years in which the Fed has been the main player steadying the economy, he said it was time for a transition to a different debate about how to boost productivity, raise investment, and try to counter trends that are holding down potential growth.

"The job of cyclical recovery is largely done. The Federal Reserve is quite close to achieving its mandated policy objectives of full employment and stable prices," Lockhart said in an economic policy address at the Rotary Club of Atlanta.

"How is our economy positioned for the future? This is the key question. The economy today is well positioned for moderate growth and steadily improving conditions. It's less certain that the economy is positioned for a breakout to markedly higher growth on a sustained basis."

The types of regulatory, tax or other changes that may be needed, he said, are "more the domain of Congress, the administration, and the private sector..It's time for the Fed and monetary policy to shift to more of a support role."

Lockhart did not in his prepared remarks indicate when he expected the Fed to next raise rates, though he said he expected any future increases to come at a "gradual" pace.

At its last meeting the Fed raised rates and indicated the tempo of increases may accelerate following the election of Donald Trump on promises of a major spending plan and tax reform. Several policymakers have since said rates may have to rise faster under Trump in order to hold inflation at bay.

Lockhart, however, said he felt it was still too early to make any judgment about how the new administration may change the path of the economy.