The U.S. economy is unlikely to slip back into recession, and an improvement in recent indicators has been encouraging, Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday.
Lockhart said growth was still too weak to put a dent in the nation's 9.1 percent unemployment rate, but he said conditions would need to worsen before the central bank considers another round of bond purchases.
"It requires circumstances that we're not facing at the moment -- the onset of a recession, deflationary pressures, and seriously rising unemployment," Lockhart told reporters after a speech.
Asked whether the Fed should consider more detailed communications steps, such as specific goals for major economic indicators, Lockhart said he favors an explicit inflation target.
Lockhart said Europe's debt crisis posed a major threat to the U.S. economy, as does the prospect that a prominent panel of U.S. politicians will fail to reach agreement on ways to rein in the budget gap. A sharp ratings downgrade of Spain on Tuesday indicated the situation was nowhere near resolved.
Still, Lockhart noted that growth has remained insufficient to put a significant dent in the nation's elevated 9.1 percent jobless rate, and was unlikely to quicken sufficiently to drive progress on employment in the near future.
U.S. gross domestic product grew under 1 percent in the first half of this year, despite the Fed's extraordinary effort to support growth with its ultra-easy monetary policy. In September, the Fed announced a new policy whereby it will sell $400 billion in short-term Treasury securities and use the proceeds to buy long-term bonds.
The idea is to push long-term borrowing costs even lower, though many economists doubt the policy will have a discernible effect on the economic expansion.
"I expect it to have a modest positive effect," Lockhart said. "The operation should be viewed as part of a wider policy. That policy is quite accommodative."
Lockhart saw some of the recent pessimism about the economy as being overdone.
"Let's not talk ourselves into believing that enduring weakness or recession is inevitable," he told the CFA Society of East Tennessee at a local golf resort. "Much of the incoming data have exceeded most forecasters' low expectations."
In response to the deepest recession in generations, the Fed not only slashed official interest rates to effectively zero but also bought some $2.3 trillion in Treasury and mortgage securities in an effort to support a fragile recovery.
With growth still lagging despite such efforts and a large fiscal stimulus package, President Barack Obama has called for a $447 billion new jobs program. But the measure was recently defeated in the Senate, suggesting it may never see the light of day.