Fed’s Lockhart: Current Monetary Policy Appropriate; Manufacturing Expanding

Inflation effects "muted"; economy still in need of support

Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, on Friday talked about current monetary policy and the effects of inflation on the economy in a speech before the Knoxville Economics Club in Knoxville, Tenn. He also addressed the role of manufacturing in the economic recovery.

While the economy is expanding, although at a slower pace than Q4’s rate implied, Lockhart said that a number of factors are responsible for holding it back. Among those factors are a weak housing sector, rising oil and energy prices, political instability in the Middle East/North Africa (MENA) region, and unemployment—as well as supply chain concerns for manufacturers. Most of these things are serious concerns for consumers, having an impact on consumer confidence that slows recovery.

Manufacturing production, he said, was a large contributor to the recovery; both production and employment have rebounded strongly, and have “outpaced growth in the rest of the economy.” A rise in exports also helped, with demand for U.S. manufactured goods creating the largest contribution to GDP growth since World War II.

However, manufacturing output declined more than the rest of the economy during the recession, and has yet to recover. There is a wide variation across industries, he added, with computer and electronic products output already ahead of where it was pre-recession but domestic apparel manufacturing not showing much recovery at all.

The number of manufacturing jobs has fallen while productivity has risen; along with productivity, he added, wages in the sector rose as well. While inflation has an impact on manufacturing, because of the limited ability to pass through increases to consumers, “the effect is likely to be muted.”

Longer-term inflation trends, said Lockhart, are stable, “and predicting that commodity price growth will stabilize, current monetary policy is appropriate.” He added, “There is still a halting and fragile quality to the economy.” This, he said, still requires support.

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