WHEN: Today, Wednesday, August 6th
WHERE: CNBC's "Closing Bell"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of Atlanta President & CEO Dennis Lockhart today on CNBC.
All references must be sourced to CNBC.
KELLY EVANS: WELCOME BACK WE ARE LIVE IN ATLANTA GEORGIA TODAY AND NATURALLY WE WANTED TO CATCH UP WITH THE ATLANTA FEDERAL RESERVE PRESIDENT DENNIS LOCKHART RECENTLY HE STATED HE BELIEVES INTEREST RATES WON'T RISE UNTIL WELL INTO 2015 BUT SOME TIME HAS PASSED SO FOR MORE ON WHERE HE STANDS TODAY LET'S ASK THE MAN HIMSELF DENNIS LOCKHART WELCOME.
DENNIS LOCKHART: HI KELLY HOW ARE YOU?
EVANS: IT IS GREAT TO SEE YOU. AND I WONDER GIVEN THE EVIDENCE LATELY THAT THE US ECONOMY MAY GROW AT A BETTER THAN 4% RATE IN THE THIRD QUARTER WHAT YOU THINK THAT MEANS FOR THE NEXT MOVE IN INTEREST RATES?
LOCKHART: WELL I THINK IT IS A LITTLE EARLY TO CONCLUDE THAT THE ECONOMY IS GOING TO GROW THAT FAST IN THE THIRD QUARTER. THE SECOND QUARTER NUMBER VALIDATED I THINK THE VIEW THAT THE FIRST QUARTER WAS AN ABBERATION BUT THERE WAS A MAJOR INVENTORY FACTOR IN THE SECOND QUARTER AND THAT INVENTORY ACCUMULATION MAY REVERSE IN THE THIRD QUARTER SO I THINK IT IS A LITTLE EARLY TO CONCLUDE THAT WE ARE GOING TO SEE THAT STRONG GROWTH IN THE THIRD QUARTER.
EVANS: SO YOU ARE NOT A VOTING MEMBER THIS YEAR
LOCKHART: NO NEXT YEAR
EVANS: NEXT YEAR DALLAS FED PRESIDENT RICHARD FISHER JUST SAID HE THINK MORE OF THE FED IS COMING AROUND TO HIS VIEW WHICH IS A MORE HAWKISH ONE. I GUESS THAT MEANS THAT YOU ARE NOT ONE OF THEM?
LOCKHART: I STILL MAINTAIN THAT SOMETIME AROUND YEAR NEXT YEAR ONWARD PERHAPS IN THE SECOND HALF OF NEXT YEAR IS LIKELY TO BE THE RIGHT TIME FOR CONSIDERING A RATE MOVE. I AM STILL LOOKING FOR LET'S SAY AN ACCUMULATION OF VALIDATING DATA TO TELL US THAT WE ARE ON THE TRACK THAT WE NEED TO BE ON TO CLOSE IN ON OUR OBJECTIVES SO I GUESS I AM A LITTLE BIT SLOWER ON THE TRIGGER THAN RICHARD FISHER.
EVANS: I CAN UNDERSTAND THAT IF THE STOCK MARKET WASN'T NEAR ALL TIME HIGHS A LOT OF THE CONCERNS FROM THE FISHERS AND OTHERS COME FROM THIS IDEA THAT LOOK WE CAN'T AFFORD TO BE 100% SURE THAT THE MOMENTUM IN THE ECONOMY IS THERE AT A TIME WHEN THAT COULD RISK BUBBLES IN ASSET MARKETS SO WHAT ABOUT THAT?
LOCKHART: YOU ARE NEVER GOING TO BE 100% SURE BUT I THINK THE KEY QUESTION IS HAS ENOUGH EVIDENCE COME IN TO HAVE HIGH CONFIDENCE THAT WE WILL NOT SEE A REVERSAL OF THE TRENDS THAT WE ARE SEEING. AND I WOULD LIKE TO SEE MORE EVIDENCE.
EVANS: ARE YOU TALKING SPECIFICALLY ABOUT WAGES?
LOCKHART: I AM NOT. I AM TALKING ABOUT FIRST GROWTH LET'S KEEP THIS IN PERSPECTIVE WE HAD A VERY WEAK FIRST QUARTER. I AM PREPARED TO CALL IT AN ABBERRATION. MOST PEOPLE VIEW IT THAT WAY. WE HAD A SECOND QUARTER THAT FINAL SALES THAT EXCLUDES INVENTORY CAME IN AT SAY 2.3%. THAT'S NOT A 3% GROWTH RATE AND SORT OF A CORE SENSE OF THE PACE OF THE ECONOMY. 4% WITH THE INVENTORY IS A VERY NICE NUMBER OF COURSE AND WE ARE VERY HAPPY ABOUT THAT. THIRD QUARTER IS A LITTLE EARLY TO SAY SO I AM JUST SIMPLY SAYING AND LOOKING FOR MORE EVIDENCE THAT WE ARE ON THE TRACK THAT WE THINK WE ARE ON AND THAT THAT'S GOING TO PRODUCE THE RESULTS AND I THINK IT IS GOING TO TAKE AWHILE TO BE SURE OF THAT.
EVANS: SO WHY AREN'T YOU WORRIED THAT THE FED COULD BE BEHIND THE CURVE? IN OTHER WORDS, LET'S SAY YOU ARE RIGHT THAT WE NEED SIX TO NINE MONTHS TO KNOW FOR SURE IT TAKES A LONG TIME FOR MONETARY POLICY TO AFFECT THE ECONOMY. SO CAN WE AFFORD TO WAIT THAT LONG?
LOCKHART: WELL I THINK YOU HAVE TO LOOK AT THE RISKS THAT WOULD ACCOMPANY BEING BEHIND THE CURVE. THE MOST IMPORTANT ONE OR ONE THAT'S CERTAINLY ON EVERYONE'S MIND WOULD BE A RISK OF A BREAKOUT OF INFLATION TO THE HIGH SIDE AND HAVING THAT BE SUSTAINED PERSISTENT AND UNDESIRABLE INFLATION AND I THINK THAT IS SIMPLY LOW PROBABILITY. INFLATION EXPECTATIONS ARE VERY WELL ANCHORED THE PUBLIC I THINK IS NOW VERY USED TO A PACE OF INFLATION AROUND 2% TO THE LOWER RECENTLY BUT OVER THE LONG TERM I THINK THEY HAVE BEEN CONVINCED. THE PUBLIC HAS BEEN CONVINCED THAT INFLATION IS UNDER CONTROL AND SO I AM NOT SO WORRIED THAT A QUARTER OF DELAY RELATIVE TO RICHARD'S VIEW FOR EXAMPLE IS GOING TO MAKE A BIG DIFFERENCE.
EVANS: ARE YOU WORRIED THAT THERE IS A LONGER TERM DAMAGE BEING DONE TO THE ECONOMY AND TO THE AMERICAN PEOPLE BY THE WEALTH GAP SOME WOULD SAY THAT RESULTS FROM THIS? AND NOTABLY, AND OUR SHARON EPPERSON JUST MENTIONED THIS, THERE IS A LOT OF RECENT SURVEYS OF THE EXTENT TO WHICH THE GENERAL AMERICAN POPULATION DOESN'T FEEL CONFIDENT IN THE FUTURE. FEELS AS THOUGH THE DISPARITIES IN THE ECONOMY ARE WIDENING AND THAT THEY ARE NOT PARTICIPATING AND ALL THE GAINS ARE FLOWING TO THE ONE PERCENT.
LOCKHART: LET ME FIRST SAY THAT AS A MONETARY POLICY MAKER, MONETARY POLICY CAN DEAL WITH THE EXPANSION OF THE PIE, BUT CAN'T DO MUCH ABOUT THE DISTRIBUTION OF THE PIE. SO TO THE EXTENT THAT I AM CONCERNED, I'M SIMPLY CONCERNED AS A CITIZEN THAT THE TRENDS THAT WE HAVE SEEN NOW LITERALLY OVER DECADES HAVE SEEN INCOME MORE CONCENTRATED IN THE TOP TEN PERCENT OF INCOME EARNERS. AND EVEN WITHIN THE TEN PERCENT, INCOME CONCENTRATED IN THE TOP ONE PERCENT. TO THE EXTENT THAT THOSE TRENDS CONTINUE, AND THEY COULD EFFECT THE ECONOMY BY WEAKENING THE CONSUMER ELEMENT OF A CONSUMER-BASED ECONOMY, OF COURSE I AM CONCERNED. BUT IT IS NOT SOMETHING AS A POLICY MAKER THAT I CAN EASILY ADDRESS.
EVANS: SO YOU DON'T THINK THERE IS ANYTHING THE FED CAN OR SHOULD TRY TO DO ABOUT IT?
LOCKHART: I DON'T THINK INCOME DISTRIBUTION IS A MONETARY POLICY OR A FEDERAL RESERVE, LET'S SAY FRONT OF MIND ISSUE TO TRY TO TREAT. WE CANNOT TARGET MONETARY POLICY. MONETARY POLICY REALLY DEALS WITH THE BROAD ECONOMY AND THEN MARKETS AND OTHER FORCES SORT OUT WHO GETS WHAT WITHIN THAT ECONOMY.
EVANS: GIVEN YOUR PRIVATE SECTOR BACKGROUND, I WANT TO ASK YOU AS WELL ABOUT THE ISSUE OF CORPORATE TAX INVERSIONS BECAUSE I'M SURE YOU CAN UNDERSTAND THE INCENTIVE THAT IS THERE FOR A LOT OF THESE CEOS AND A LOT OF THE SHAREHOLDERS PUSHING FOR THEM, WHILE AT THE SAME TIME LOOKING AT PERHAPS THE ECONOMIC DAMAGE THAT IS BEING DONE TO THIS COUNTRY. IS THERE DAMAGE BEING DONE HERE?
LOCKHART: WELL, I OBVIOUSLY FROM THE POINT OF VIEW OF FEDERAL TAX AND SOME STATE TAX REVENUES, THOSE JURISDICTIONS THAT WOULD BE EFFECTED BY A LOSS OF REVENUES WOULD BE EFFECTED. SO CLEARLY, THAT IS THE CASE. HAVING SAID THAT, FROM MY PRIVATE SECTOR BACKGROUND, I THINK I UNDERSTAND THAT THIS IS A COLLISION OF COMMERCIAL LOGIC WITH POLITICAL LOGIC. AND FROM A COMMERCIAL LOGIC POINT OF VIEW, IF I'M A SHAREHOLDER OF A COMPANY, I PAY THAT CEO TO TRY TO AVOID – NOT ILLEGALLY EVADE – BUT AVOID UNNECCESSARY EXPENSES, INCLUDING TAX EXPENSES. SO I REALLY DO THINK THAT THIS IS WHERE ONE MENTALITY COMES IN TO CONFLICT WITH ANOTHER.
EVANS: AND LAST QUESTION HERE. IT GOES TO WHERE INTEREST RATES ULTIMATELY DO GO FROM HERE. KIND OF EVERYBODY'S WORLD VIEW CAN ALMOST BE ENCAPSULATED IN. DO YOU THINK INTEREST RATES GO TO TWO PERCENT? OR FOUR PERCENT? EVEN AT THE END OF THIS TIGHTENING. EVEN AT THE END OF THIS CYCLE OF RAISING INTEREST RATES THE FED IS ABOUT TO EMBARK ON AT SOME POINT. WHERE DO YOU THINK WHAT THAT RATE IS? WHAT IS THAT RATE TODAY?
LOCKHART: THE WAY THAT QUESTION IS FRAMED USUALLY IS WHAT IS THE LONG-TERM NEUTRAL RATE FOR THE POLICY RATE – WHICH IS THE FED FUNDS RATE. AND THE DEBATE RIGHT NOW IS WHETHER IT IS FOUR PERCENT, AS MOST OF US HAVE PROJECTED IN THE SUMMARY OF ECONOMIC PROJECTIONS THAT WE SUBMIT EVERY QUARTER, OR WHETHER IT IS LOWER. LOWER MAYBE BY ONLY A QUARTER AT 3.75 PERCENT. YOU KNOW, I HAVE LISTENED TO THIS DEBATE. I'M ENROLLED IN DISCUSSING IT WITH MY STAFF AND SO FORTH. BUT I DON'T HAVE A FIRM CONCLUSION. THE IMPLICATION OF A LOWER NEUTRAL RATE IS THAT WE HAVE A KIND OF CHRONICALLY SLOWER ECONOMY. I'M NOT QUITE PREPARED TO BUY INTO THAT VIEW. I THINK THE ECONOMY STILL HAS THE POTENTIAL TO GROW, LET US SAY AROUND THREE PERCENT FOR THE COMING QUARTERS. AND I'M NOT PREPARED TO BUY INTO THE VIEW THAT STRUCTURALLY THE ECONOMY IS JUST SLOWER THAN IT WAS IN THE PAST.
EVANS: THEN WE WILL LEAVE IT ON THAT HOPEFUL NOTE. DENNIS LOCKHART, PRESIDENT OF THE ATLANTA FED, THANK YOU SO MUCH FOR JOINING US THIS AFTERNOON.
LOCKHART: THANK YOU, KELLY.
EVANS: APPRECIATE IT.
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