"On a technical basis, we may avoid recession but we're in a weak economy now," he said. "My forecast is that the first half is going to be weak and we'll see some improvement in the second half."
He said inflation has been an underlying issue for a long time and should be watched carefully, as although there were no visible wage pressures, inflation expectations have been drifting upwards recently.
But, Lockhart added, the weak economy will bring inflation down: "There's some indication and some hope that we're going to see a slowing of the pace of inflation."
The housing market remains week, especially in South Florida, and the financial turmoil is not over yet, he said.
"We're not out of the woods. No time to light the cigar," Lockhart said.
Regarding recent information in the press that the Federal Reserve may consider a shift from its "hands-off" approach on asset bubbles which consists in not trying to fight a bubble but deal with the consequences once it bursts, he said prudence was needed.
"My starting point on this is to be somewhat cautious of intervening in the market," Lockhart said, adding that it was difficult to gauge when an asset bubble was forming and if prices were rising because of speculation or for fundamental reasons.
But, he said, "if an asset bubble portends systemic risk, certainly it (the shift in approach) is something I would support consideration of."