YouSaid · the spoken record

Dennis Lockhart

lines on the record: 27
first: 2023-08-12
most recent: 2023-08-12
sittings or episodes: 1
sources: podcast

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“And once that emergency has passed, it's sensible to try to get down to something that is smaller rather than take all the risks that operating with such an inflated balance sheet or let's say a ballooned balance sheet represents. And so I think there is a strong, strong impetus to get that balance sheet down to a smaller level.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“What's uncomfortable first, it's in an unknown territory, and the first time we went through a period of quantitative easing, we got to, I think, $4.8 trillion or something like that. And that was unknown territory. Part of it is you just don't know what effect that's having really on the financial system and ultimately on the economy. And secondly, means that the balance sheet is extremely heavy in bank reserves, which in many cases do not translate into actual loans and actively working in the economy. They're over and above what the bank needs. Are as requires. So there's just a lot of reasons why you inflated the balance sheet. In this case, for emergency reasons, to offset the shock that occurred when COVID”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“So, quantitative tightening might continue if the Fed Reserve cuts interest rates. What do you say to a normal level or to a comfortable level? What's uncomfortable about $9 trillion? What's uncomfortable about large amounts of quantitative easing? Is it an economic thing, financial stability? Does it set a precedent that is perhaps uncomfortable?”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Within the Fed conceivably within the Fed, that the objective to get the balance sheet down to a more Normal if they use that word to a level that is more comfortable. Is an end in itself And therefore they might very well tolerate a situation where those two policies seem to be contradictory. That could happen in the future. So I wouldn't rule that out. It's an interesting. Twist because you would think that you'd never want two big policy levers to be operating against each other, but it may be now that getting the balance sheet down to a more manageable and how should I put it, just a more comfortable level is becoming an end in itself.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Well, it does appear to be very logical on the surface that if you have two basic tools, one is the interest rate tool and the other is the balance sheet, so quantitative easing or tightening. They ought to be consistent. They shouldn't work across purposes. And that has been the assumption, I think, for a long time. That doesn't mean that there couldn't be a short period in which one catches up with the other and it would generally be the balance sheet catches up with the interest rate positioning or stance. One of the presidents recently. Argued that it might be very sensible to continue to let the balance sheet decline Which would obviously be a form of tightening. Even after the Fed may have decided to cut interest rates or certainly to pause. That is basically telling me that there is a school of thought that's developing.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“The answer to that is both. But, you know, very prominent economists have proposed raising it or proposed 4% for a variety of reasons. 4% was discussed as an inflation target when the economy was relatively weak for that period from 2009 to say 2019 by raising the inflation target you would be in effect spurring more activity And so it was viewed as an answer to an economy that was underperforming arguably today we have an economy that's overperforming and I remember in one or two meetings some of my colleagues Raised the idea that maybe the inflation targeting the target should be raised. There was one particular president who was an advocate of that position But it never really got to be seriously considered.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“And just to clarify, so when I asked you, has changing the inflation target or adjusting it and you said it's been discussed, would you say it's been discussed by outsiders such as myself or people at the Federal Reserve have discussed that?”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Raising the target, even though that could be a way of declaring victory is likely to happen, nor is it probably the best policy decision. I do think that policymakers could Emphasize a little bit more that they're really shooting for something in a range they adopted a couple years ago flexible average inflation targeting. So they're really actually looking for an average over time. So to talk a bit more about ranges as opposed to a point estimate of inflation. But that's a nuance, really. That's a communications issue more than anything else So, my overall answer to your question is too much has been invested in this. It's the international standard. I just doubt that anyone will take the decision to raise or to change the inflation target.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's been discussed a lot. And so the question you're asking has been raised quite often, particularly recently when we were in a period of high inflation. And bringing it down may become increasingly difficult. It's a serious question. My own view is that much has been invested in the 2% target. That the American public has heard it enough now that they Largely believed that's what the Fed is trying to do. And I don't think you would want to go into a mode in which you are adjusting your target, which is a long-term target on average 2%, adjusting it for whatever circumstances arrive every few years. And so that's probably not a good idea. It confuses the public. It really is. The kind of change that could be disruptive over time. So I don't think”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Manufacturers of inflation that we've talked about, the Federal Reserve can attempt to control with higher or lower interest rates, as well as the balance sheet. There are a lot of secular factors over which the Federal Reserve, as Jay Pell has said, has essentially no control, such as reshoring. So making more things in the US, which is more expensive on the margin, so more inflationary, perhaps oil prices as well. Do you ever think it could be possible that the Federal Reserve could adjust its inflation target to meet potential secular inflationary forces? So an inflation target of 3% or something like that, or it's 2%, but it's plus or minus. So anywhere from 1 to 3%.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“The other point is inflation measurement is not so perfect as to be absolutely certain that you're trending at two percent or one point five percent. You could be at 1.5 percent and in fact be basically flirting with deflation because it's just not that exacting. So 2% was a healthy cushion from the perceived deflationary threshold. And at the same time was a number that was low enough that over the long run it would not be a major factor in the decision making of households or businesses making investment decisions. So it's sort of it's the Goldilocks number that therefore isn't front of mind with every decision that a household or a business makes.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“I often got questions people often ask why not zero? And very serious people have argued for zero. Why not if isn't price stability just no changes in the broad price level over time? And what I learned in talking to some very able people on my economic staff is that. The choice of 2% was far enough. From the threshold of deflation and deflation, central banks aren't terribly good at dealing with deflation. It's a very hard problem and it can be self-feeding. So you want to stay away from whatever you think is the threshold of deflation by enough that you have a reasonable cushion”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“So many who have asked the question, and I remember my staff early on after I joined the Federal Reserve asking me what was my personal opinion of where inflation should settle out. And I hemmed and hod and said, well, somewhere between one and a half and two percent. And I'm sure many people at the table had a personal target in mind or a personal way of thinking about where inflation should be. But as it wasn't institutionalized. And the decision to become an inflation targeting central bank therefore institutionalized it.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“It was not a specific number or at least didn't have a reference number associated with it. It was whatever the committee By consensus, I believe. Represented low and stable prices.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“And so when you joined the Federal Reserve in the early 2007 Federal Reserve was not an inflation central targeting bank, is it? And so at that time... What did you target if you targeted low inflation, the dual mandate, what did that mean? It wasn't a specific number?”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“I think he finally felt that he had the support he needed to bring it effectively to a vote. And I recall Chairman Bernanke saying now we need to settle in part of this question is to settle on what is going to be our official index and our official measurement of inflation. And he said, I prefer the PCE deflator, which would be the index of personal consumption expenditures, not the CPI, and the deflator is just another word for inflation index. And we chose the headline number, which includes energy and food. Even though in reality, I think much of the analysis is done with the core measures as opposed to the headline measures. But it was a pretty dramatic meeting in the sense that something that had been on the table for a number of years finally came to a head and a decision was made.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“My recollection of the whole history is that Chair Ben Bernanke had been trying for years to convince the committee to become an inflation targeting central bank. There were a number of other central banks that had taken that step. Two percent had become the international standard. And I think Bernanke was convinced that the Federal Reserve should also adopt that particular position. I think he believed at the time and I accept the argument that explicitly stating a 2% target for inflation helps to anchor inflation expectations and inflation expectations are a factor in inflation. It's important that public not believe that inflation is going to get out of hand. And therefore, change their consumption patterns for that reason. So in the meeting.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Well, certainly we've had a period in which fiscal policy was very stimulative. The deficit is declining but still remains at a very high level. So I think you would argue that fiscal policy remains net quite stimulative. It's certainly not restrictive in terms of at least the motors of the economy like consumer activity and such. effect on the stance of policy today, I think it's a part of three or four different factors that are continuing to Propel the economy forward at a pace that is arguably. Faster or stronger than the Fed would like. The Fed is trying to slow things down and fiscal policy probably is not helping on the margin.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“Okay, that makes sense. Do you have a personal view? And if you don't, that's fine about is fiscal policy stimulated now such that higher for longer and interest rates are going to be higher. Our star is going to be higher in a way that perhaps during your middle of your tenure at the Federal Reserve fiscal policy wasn't. So 0% was appropriate”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“In my experience, the Fed stays out of fiscal policy, so therefore it's not out there trying to advocate for one course of action or another very broadly chair powell and others have said that the fiscal situation appears to be unsustainable, but basically Fed officials don't go much beyond that kind of very, very general statement. And therefore, the fiscal policy becomes simply a factor in the makeup of the economy at any given time. And the Fed has to deal with whatever is that economy and how it's trending or how it's evolving. And fiscal policy is a factor in that, maybe not the only factor or the decisive factor, but certainly is a factor. Rather than view fiscal policy as Something to be addressed specifically by the Fed, it's more wrapped up in the overall economic picture.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“It's a blunt tool that is the interest rate tool. And its effect is variable over time. There are times in which it's going to be more effective than others. We certainly know that at least in the first incidents after a rate increase or a series of rate increases, there are intersensitive sectors that tend to react and many that don't. sensitive sectors include for example residential real estate or autos where there's a fair amount of consumer borrowing that goes on based upon the monthly payment which is based upon the interest rate so some kind of effect occurs relatively quickly the more subtle effects can take time and they can be different from period to period”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“So the theory of how higher interest rates can constrain economic activity or lower interest rates can stimulate economic activity. Fair to say mainstream within the Fed, mainstream outside of the Federal Reserve in Economics, in your 10 years as well as now, how would you say interest rates actually affects economic activity? Because interest rates were very low. We're at near zero after the great financial crisis and the recovery was somewhat slow and sluggish. Interest rates right now at 5.5% and the economy has been somewhat strong over the past year or so. What do you think?”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“That the Fed is actually going to deliver a point that is a specific number in the future. And I think the criticism is valid when the forecasts are way off. And that means that the basic narrative that the public officials, the policymakers believe is most likely turns out to be wrong. That narrative turns out to be faulty. But if the forecasts are largely consistent with or broadly consistent with the story that was embedded in the forecasts and it's reasonably close, then I think the forecast should be respected.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“You give it your best shot, really, is what it amounts to, recognizing that your forecast could be radically wrong or at least off considerably. And it's all conditioned upon economic circumstances at some stage in the future, which are unpredictable, financial conditions as well. If it's your job, you have to give your best opinion. Sometimes I think those forecasts are taken a bit too literally, and then there's a lot of blame put on the people making the forecast. It's not an easy job, and they should be taken, I think, with a great deal of skepticism that that's the way the world's going to play out.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“And we said the theory of transitory that inflation was transitory was to you plausible. I think that hints at the very intellectually honest position that you don't know. You don't know if it's transitory. You think it might be. You think it might not be with the benefit of hindsight, easy to say that it wasn't. But when you're at the Fed, you're making decisions about an unknowable future. And that's why it might not make sense to say, oh, where's the tenure going to be in a year? 5%, 4%, 6%. We don't know the best economists in the world don't know, best investors in the world. They don't know if they're right. You know, they can make some good returns. But it's very hard. And yet you at the Federal Reserve, when you were there and folks at the Federal Reserve now have that responsibility and you share your forecast for what inflation is going to be, what core PCE inflation is going to be, where the Fed funds rate even, what is growth going to be like? So what is...”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“I think those of us who lived through the decade 2007 to 17 or even beyond to 2019 had to be a little bit surprised that the tables were completely turned. The world had changed rather dramatically because inflation for us was a problem of getting it up. And then rather quickly inflation made an about face and became a problem of peaking of 9% or higher and then having to get it down. So that was a startling change. In the period in which, starting in 2020 and the period in which the Fed and JPAW were arguing that inflation was transitory, I viewed it as a plausible argument. So persistent inflation, and it's arguable that we've had an element of persistent inflation in the last three years. Again, is a little bit of a surprise. It's been slow to normalize or regularize. It is coming down, but slower than I expected.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT
“I'm retired from the Fed now for five years. I was president of the Federal Reserve Bank of Atlanta, and I'm currently a distinguished professor of the practice at Georgia Tech.”
2023-08-12 · Forward Guidance · Rate Cuts May Not End Fed's Quantitative Tightening | Former Atlanta Fed President Dennis Lockhart · IDENTIFIED FROM THE TRANSCRIPT