Federal Reserve Bank of Atlanta President Dennis Lockhart spoke with FOX Business Network’s (FBN) Peter Barnes about quantitative easing (QE) and tapering the Federal Reserve’s bond-buying program. Lockhart said, “To translate tapering into downward adjustment, I think we are approaching a period in which it can be considered.” Lockhart went on to discuss his concerns surrounding tapering, saying, “I still think we have to be cautious, to make sure that we’re reading an economy that has momentum and has growing confidence. I think there’s certainly a case for, at this very moment, it being a little bit premature. So, you know I think it’s a meeting-by-meeting kind of thing.”

Atlanta President Dennis Lockhart

Excerpts from the interview are below.

Atlanta President of Fed on his position regarding tapering quantitative easing (QE)

“First, I am not sure that tapering is quite the right word. I think in terms of downward adjustments we have been trying to position this policy as a flexible policy that could be used in either direction and be calibrated to how the economy is actually performing. So to translate tapering into downward adjustment, I think we are approaching a period in which it can be considered. That’s not to say June meeting, but we are approaching a period in which it can be seriously considered based upon sort of the momentum of the economy which is not great but nonetheless is moving forward and based upon accrediting confidence in the economy.”

Atlanta President on what economic improvements he wants to see before he would vote for tapering:

“The most prominent ones of course would be related to employment so the jobs number and the unemployment rate. Beyond that I look at a range of other indicators of health of the employment markets and try to draw an overall picture. Sometimes there can be inconsistencies within the numbers that are gathered for the employment markets. Obviously the growth figures matter and I keep my eye on inflation expectations. We are in a period in which the inflation numbers are soft and there’s a scenario in which if they continue to soften we have a different kind of problem to deal with. There are various measures of inflation of course but at the moment inflation is below 1.5% by a number of different measures.”

Atlanta President of Fed on past comments he’s made that any move to stop QE3 might be premature:

“Well, I still think we have to be cautious, to make sure that we’re reading an economy that has momentum and has growing confidence. So, I think there’s certainly a case for, at this very moment, it being a little bit premature. So, you know I think it’s a meeting-by-meeting kind of thing. I know the participants in the market are very concerned and fixated really on the timing of any adjustment to the asset purchases, but I think really the bigger picture is, how is this economy trending, how is confidence growing, and how sustainable is all this to justify a downward adjustment in asset purchases?”

Atlanta President on the employment market:

“I expect that we will see this kind of moderate pace of job creation in the 160-175 range. Something like that. Above that would certainly I think be encouraging. Below that would certainly give me a little pause about whether we have enough momentum going to consider an adjustment to the asset purchases.”

Atlanta President on tapering and its impact on the market and whether the Fed can manage it without disrupting the markets:

“Well, the question of markets disruption is one that we follow very carefully. There are thresholds for purchases in different classes of securities, both thresholds in terms of per-operation as well as the accumulated stock that we might hold. Those numbers are monitored carefully by the desk here in New York, and then the Federal Market Committee itself follows what’s going on in terms of our position in the markets. At the moment, I don’t think we’re in the danger zone. I don’t think we’re crossing any thresholds that would really distort the markets, but it’s something we have to keep an eye on. And it’s certainly an important question, both as we continue some amount of asset purchases and then at some stage, which is down the road, the true unwinding of the total policy.”

Atlanta President of Fed on whether he is still concerned about the economy possibly having a summer swoon:

“Well, when you look carefully at that, it’s a little bit difficult to call the slowdown in growth that occurred at various quarters in previous years a summer swoon. But the employment numbers did weaken more or less in the middle of the year for the last three years. So, I would be somewhat more concerned about a slowing of the pace of job creation and slowing of momentum in the employment markets.”

Atlanta President of Fed on the possibility that the Fed might buy bonds at a higher pace than the current $85 billion a month:

“I don’t think it can be ruled out. As I said, we’ve been trying to position this as a flexible policy that can be calibrated to conditions.  One set of conditions would be, as I said earlier, inflation numbers that are really moving in the direction of deflation. That is disinflation that seems to be moving towards deflation. A situation that in some respects we faced in the fall of 2010. So that would be one scenario. Another scenario would be some shock to the economy that appears to be threatening recession, and therefore need to do what we can to try to blunt that. So, those would be two ways – two circumstances –that we might do something like that.”

Atlanta President on his overall forecast for the economy through the end of this year and into 2014:

“First of all my outlook is pretty much a continuation of this slightly better than two percent growth that we’ve actually been seeing for most of the recovery. That story is two percent growth, gradual reduction in unemployment, and low and really controlled inflation. So, I see no reason to come off that outlook. That’s my basic outlook.  I do think the risks around that outlook have abated a bit. Some of the things we were concerned about a year ago, two years ago, we’ve simply managed through. Europe is in a somewhat better situation. We’ve gotten past some of the fiscal issues, for example, the fiscal cliff. At least we have some certainty as to what the tax situation is. Even the sequester, now that we’re in it, at least is more of a known quantity.  So, I don’t think the risks around the outlook are nearly what they were a year or more ago, and that gives me more confidence in the sustainability going forward.”

Atlanta President of Fed on whether he thinks deflation is a real risk:

“I think the key thing to watch is inflation expectations, which are measured in

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