Dennis Lockhart, of the Federal Reserve Bank of Atlanta Remains Concerned About Job Losses
Wednesday, March 04, 2009SUSIE GHARIB: A top official of the Federal Reserve tells NIGHTLY BUSINESS REPORT he's worried about the nation's job losses. But Dennis Lockhart, president of the Federal Reserve Bank of Atlanta told me in a exclusive interview a short while ago he believes the central bank and the Treasury are taking the necessary steps to revive the U.S. economy. Lockhart's views are significant because he's a voting member of the Fed's policy setting committee, which meets in two weeks to determine the Fed's next course of action. My first question to Lockhart, what will pull the U.S. economy out of the recession?
DENNIS LOCKHART, PRESIDENT, FEDERAL RESERVE BANK OF ATLANTA: Well, I think we're going to look for a turn of confidence that is built on what I might call a moment which becomes the half full moment. It used to be the half empty moment. Some of the signs that might improve the overall atmosphere in the economy would be rising home sales for example, the success of the, the Treasury programs that are being put in place now and the stabilization of the banking system, the improvement in consumption or consumer activity. These are the kinds of things that I think will show up in the data but also should show up in the atmosphere in the economy.
GHARIB: We didn't get much good data today, Mr. Lockhart, about the job market, some news of big job losses in February. What are you expecting from the employment report that comes out on Friday?
LOCKHART: I'm not expecting a good report. I'm concerned that this too will show some job destruction, substantial job destruction and that the unemployment rate will rise.
GHARIB: As far as the economic stimulus plan goes, will it really create new jobs or is it just limiting the number of job losses?
LOCKHART: I certainly think aspects of it have the potential to creating new jobs. Really as a Treasury program. I really think and as administration program it's probably best for me not to opine in detail. But clearly the, the tax elements of the program, the tax relief will create some consumption activity in the relatively near term. The infrastructure projects and shovel ready projects will create employment once mobilization has taken place in those projects actually are under way. So I think there is a reasonable hope that we'll see some job creation in certain categories. The down streaming of funds to states and municipalities I think should preserve jobs in the public sector at the state/municipal level.
GHARIB: As you know, consumers are very worried about losing their jobs and so they're saving more. They're spending less. How do we get a recovery without the consumer?
LOCKHART: Certainly the consumer is essential in the short-term. There's no question that we're going to need to see consumer spending to get the economy moving because the consumer represents such a large proportion of our economy. So at least in the short-term, we're going to need to see the kind of confidence that will bring the consumer back to the stores and consuming again.
GHARIB: What do you expect from TALF, the Term Asset-Backed Securities Lending Facility? By giving money and loans to consumers and small businesses, how much will this help the economy?
LOCKHART: What it's designed to do is to unlock the securitization markets, which are a substantial portion of our financial system and if successful, the TALF should begin to promote the flow of credit to individuals, small businesses and under study is also the commercial real estate mortgage-backed securities market. So that would help the commercial real estate market as well.
GHARIB: As you know the Obama administration rolled out today's loan modification program to help struggling home owners. Will this stabilize home prices in your view?
LOCKHART: I think if successful, it will help to stabilize home prices. Many of the modifications or a good portion of the modifications to date actually have not been payment reducing modifications. And a key element of this program to mitigate foreclosures is actual reduction in payments. The target is to try to bring payments for at least one class of borrowers down to 31 percent of their income. That should help deal with the foreclosure problem and if the foreclosure problem can be, can be contained, it will help house prices.
GHARIB: Now these problem loans are a big issue for banks. From what I hear Treasury is working on a plan of public/private partnerships to buy problem loans from banks. In your view is this the right solution to make banks healthy and would you support it?
LOCKHART: I definitely supported the good bank/bad bank method of trying to separate problem assets from the bank, cleanse its balance sheet and put it in a position to start lending again, to move ahead, has been successful in another situations both at the national level and in the case of individual banks, I think it's a good approach, probably an essential approach to get the banks stabilized and to put them in a position to do their job of lending and moving money around the economy.
GHARIB: Mr. Lockhart, no matter who you talk to these days, people have doubts about whether all these bailouts and stimulus plans will really fix the economy. Are we on the right track or should we be trying a different approach?
LOCKHART: I'm very supportive. I think the Federal Reserve and the Treasury as well are responding aggressively to the problems and the package as a whole which of course includes the financial stabilization plan that Secretary Geithner has put forward, as well as the continuing activities of the Federal Reserve, represents a forceful response to the problems. I think there's a good chance that we'll be quite successful.
GHARIB: Mr. Lockhart, thank you so much for your time. We appreciate your coming on the program.
LOCKHART: Thank you Susie.
