Grand Central: Lockhart Explains How He Became Fed’s ‘Bellwether’ – Real Time Economics

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DERBY’S TAKE: LOCKHART EXPLAINS HOW HE BECAME THE FED’S “BELLWETHER”

Bloomberg News

Bob Dylan may have sung “you don’t need a weatherman to know which way the wind blows,” but it’s a good thing the Federal Reserve has Dennis Lockhart.

Fed watchers routinely describe the Atlanta Fed president as the central bank’s “bellwether.” While Fed hawks and doves may offer conflicting views about the future of interest rates, Mr. Lockhart cuts through the noise and provides a reliable account of the most likely path for Fed policy.

At an event in Detroit Thursday, Mr. Lockhart explained why he thinks he occupies his current perch. As he sees it, the key difference is that in an institution dominated by economists, Fed careerists and academics, he has real-world experience drawn from a long career in international banking, serving what would become Citigroup from 1971 to 1988 with work in the Middle East and Latin America.

“I have a business background” which influences how to think about central bank policy in the real world, he said. “I understand banking, therefore I understand the principle channel through which monetary policy has its influence.”

Mr. Lockhart removes himself from economists’ intellectual battles. “I try to be pragmatic. I’m not so invested in theory or in a school of economic thought. So when I come to table, I try to bring kind of a practical common sense perspective.”

Whatever the reason, he has become a good guide about what to expect from the Fed. So it’s important to listen when Mr. Lockhart says “the economy is sufficiently strong and resilient that we can begin to cycle out of what was clearly an extraordinary set of measures to something more normal.” (Translation: The economy is improving enough that we can stop promising to hold short-term interest rates at abnormally low levels and talk about when to start raising them.)

In eight years at the Fed, “I’ve never had a chance to vote on rising interest rates,” Mr. Lockhart said. That streak likely ends this year.

–By Michael S. Derby

MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD

Lockhart Says Dollar Rise Becoming Bigger Issue for Fed. Atlanta Fed President Dennis Lockhart said he’s paying increased attention to the dollar’s climb to see if it’s weighing on the economy at a time where the central bank is getting closer to raising interest rates. The dollar’s value is “part of that picture” the Fed will consider as it decides what to do, Mr. Lockhart said.

Bloomberg News

Fed’s Fischer Urges Vigilance on Shadow Bank Risks. Federal Reserve Vice Chairman Stanley Fischer urged regulators to be vigilant in monitoring risks outside the banking system even though the so-called shadow banking sector is less vulnerable than it was before the recent global financial crisis. “Many reforms have been adopted for both banks and nonbank financial institutions. But regulation is a cat and mouse game,” he said in remarks prepared for delivery in Frankfurt, Germany on Friday. “Regulators need to respond to existing regulatory gaps and to keep pace with further changes.”

Fed Finds Growing Use Of Mobile Banking. Americans are becoming increasingly comfortable using their cell phones for basic banking and payments, though security concerns still inhibit greater traction in mobile banking, according to a Fed survey of consumers published Thursday.

ECB’s Draghi Expects QE to Reach 60 Billion Euros By End of March. European Central Bank President Mario Draghi said the bank expects its bond-buying program to reach 60 billion euros ($65.83 billion) by the end of March, despite having started only on March 9. He told an Italian parliamentary committee that fears there could be a scarcity of bonds to buy were unfounded, saying that such concern “isn’t realistic.”

ECB Loan Data Suggest QE is Working. ECB lending data pointed to continued improvement in the eurozone economy, suggesting that the central bank’s stimulus measures are starting to bear fruit.

ECB Weidmann: Ending Preferential Tax Treatment of Debt Would be ‘Major Boon’ to Stability.  Ending the preferential treatment of debt would be a big help to financial stability, said European Central Bank Governing Council member Jens Weidmann in a speech Friday. In remarks to a conference, Mr. Weidmann invoked American founding father Benjamin Franklin’s famous remark that only death and taxes are certain in the world. “But actually, this timeless quip does not apply to debt. Interest expenses are tax-deductible, while equity disbursements are not,” said Mr. Weidmann.

BOE’s Broadbent: Deflation Unlikely in U.K. A senior Bank of England official said Friday the chances of a damaging bout of falling prices in the U.K. are slim. Ben Broadbent, the central bank’s deputy governor for monetary policy, said a recent slowdown in annual inflation in the U.K. has been driven largely by the fall in oil prices and that consumer-price inflation is likely to rise “quite steeply” in early 2016.

Schaeuble Says Interest Rates Are Problem For Germany. German Finance Minister Wolfgang Schaeuble expressed concern about the impact on his country of the ECB’s low interest rate policy and warned about the possibility of asset bubbles forming. “We have an interest-rate environment that of course is causing huge problems for us in Germany,” Mr. Schaeuble said. “The interest rate level is of course too low for Germany.”

Agence France-Presse/Getty Images

Japan’s Zero Inflation a Setback for Abenomics. The core gauge of Japanese consumer prices was flat from a year earlier in February, deepening worries Japan is heading back toward deflation two years after its central bank launched a radical economic-revival program.

Growing Speculation BOJ Easing May Outlast Kuroda’s Tenure. The stalled growth in Japanese prices hasn’t just made it more difficult for the Bank of Japan to hit its 2% target inflation target, it has also made it harder for the central bank to eventually turn off the spigot to its massive monetary easing program.

Report Slams U.K. Financial Conduct Authority.U.K. lawmakers slammed the country’s top financial regulator for what they described as a shocking misstep around a media briefing last year that led to wild swings in life insurance company shares.

SNB’s Zurbruegg Says Franc Remains Significantly Overvalued. Negative interest rates implemented by the Swiss National Bank two months ago require more time before they succeed in weakening the franc, SNB board member Fritz Zurbruegg said. He added that the currency remains “significantly overvalued.”

Canada’s Poloz Says Rate Cut Bought Time. Plunging oil prices have weighed on Canadian economic growth so far this year but the Bank of Canada’s surprise January interest-rate cut bought it some time to monitor the evolving situation, the central bank’s chief, Stephen Poloz, said.

Agence France-Presse/Getty Images

In Australia, More Rate Cuts Become a Matter of When, Not If. Debate within Australia’s central bank is no longer whether interest-rate cuts are necessary, but how many more would be needed to revive the stalling economy.A slew of challenges persist, even after the central   bank’s surprise rate cut in February: plummeting commodity prices; a slowdown in China, Australia’s biggest trading partner; low inflation; and a relatively strong Australian dollar that’s made exports less competitive.

Czech Central Bank Ready to Prevent Koruna Firming. The Czech central bank is ready to intervene on foreign-exchange markets at any moment if the koruna gets too strong and wouldn’t need to convene a meeting of the bank’s monetary policy board to initiate such a move, the bank said. –Dow Jones Newswires.

Chinese Regulator Dismisses Worry Over Yuan. A senior Chinese foreign-exchange regulator played down concerns over a weaker yuan and capital flight. Wang Yungui of the State Administration of Foreign Exchange said the local currency remained strong and capital was flowing into China, not out.

GRAPHIC CONTENT

Fed Report Finds Growing Use of Mobile Banking. Americans are becoming increasingly comfortable using their cell phones for basic banking and payments, though security concerns still inhibit greater traction in mobile banking, according to a Federal Reserve survey of consumers published Thursday.

FORWARD GUIDANCE

-Fed’s Yellen speaks on monetary policy in San Francisco at 3:45 p.m. EDT

RESEARCH                                                                                                                                        

Fed Shouldn’t Raise Rates Yet Because Job Market Still Ailing: Blanchflower and Levin. The Fed should be very cautious about raising interest rates just because the unemployment rate is falling, according to new research from two former central bank officials who are concerned the often-cited figure vastly overstates improvements in the job market. David Blanchflower, a Dartmouth College economics professor and former member of the Bank of England’s monetary policy committee, teams up with Andrew Levin, an ex-Fed board economist now at the International Monetary Fund, to argue that the U.S. employment outlook is much weaker than indicated by the 5.5% jobless rate registered in February.

COMMENTARY                                                          

Thomas Piketty Says Labor’s Share of Income Is Declining. But Is It? The Journal’s Greg Ip notes recent findings that “challenge Mr. Piketty’s most radical proposition, that so long as the return on capital exceeds the rate of economic growth, capitalism will tend to ever greater inequality.” Still, Mr. Ip writes, “None of this amounts to blanket repudiation of Mr. Piketty, whose book explored many more dimensions of inequality than just the recent capital-labor split.”

Middle Class Jobs Are Still Lagging. “The U.S. economy is starting to create more good-paying jobs,” Ben Casselman writes for FiveThirtyEight. “But the middle class is still lagging behind in both job growth and wages.”

Dreaming of ‘Normal’ Monetary Policy. “The U.S. Federal Reserve wants to get monetary policy back to normal without scaring or surprising the financial markets,” Clive Crook writes in a Boomberg View column. “Now, try defining ‘normal,’ and you can see it’s going to be difficult.”

BASIS POINTS

Mexico’s central bank stood pat on rates Thursday, as widely expected, adopting a cautious stance ahead of a potential rate increase in the U.S.

-South Africa’s Central Bank Keeps Rates on Hold, citing the weak state of the domestic economy, and said the near-term inflation outlook had deteriorated over the last two months.

The Central Bank of Brazil estimated that GDP shrank 0.1% in 2014 and forecast it will contract 0.5% this year. If those numbers are correct, it would be the first time since the Great Depression that Brazil posted contractions in two consecutive years.

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27 March 2015 | 11:06 am – Source: blogs.wsj.com

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