Fedspeak Highlights: Economy’s Path ‘Considerably’ Uncertain

[EV_Ares]

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, says in a speech today that — despite improvement on some fronts — “the path of the economy is still enveloped in considerably uncertainty, and serious risks remain.” He describes inflation as having reached “uncomfortable levels of inflation with hints of rising inflation expectations.” Mr. Lockhart cites three key risks to the economy: renewed financial instability, an oil price shock due to growing global demand, and an even steeper decline of house prices. Excerpts of his remarks to the Jacksonville (Fla.) Regional Chamber of Commerce:

My storyline looking ahead is not so severe a slowdown, but not so quick a recovery. As already mentioned, the first quarter of 2008 delivered GDP growth of just under 1 percent. I believe the second quarter may be somewhat better than some earlier dire forecasts. The federal government’s economic stimulus should provide some boost to household spending in the second and third quarters. On balance, I’m expecting a weak first half followed by some improvement in the second half as the drags on growth I mentioned earlier gradually diminish.

My base case for inflation assumes a fall-off from the current elevated level of inflation supported by some moderation of energy and food price increases. I also expect soft economic growth to constrain the ability of businesses to pass through energy and other costs and raise prices in the coming months. Oil prices so far this year have risen more than I anticipated as energy supply has lagged behind demand growth. My outlook assumes that energy costs do not continue to climb much further, which is an uncertain proposition. Also, I’m assuming that financial market conditions continue to stabilize and that housing sector conditions do not deteriorate dramatically.

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