Dennis Lockhart speaks on monetary policy and liftoff
Most regional Federal Reserve officials see a rate hike in 2015 (Part 2 of 9)
Dennis Lockhart speaks
Dennis Lockhart is the President and CEO of the Federal Reserve Bank of Atlanta. In keeping with the US Federal Reserve’s yearly rotation policy, he is a voting member of the 2015 FOMC (Federal Open Market Committee). He gave a speech titled “Considerations on the Path to Policy Normalization” at the Southwest Florida Business Leaders Luncheon in early February.
If 2015 is the year when the Federal Reserve begins to normalize its monetary policy, his views as a voting member of the FOMC assume a lot of importance. With the term normalization, we’re referring to two aspects of monetary policy—the federal funds rate and the Fed’s balance sheet. Most of the market’s focus is on the timing and the quantum of rise in the federal funds rate.
Liftoff
As far as the federal funds rate is concerned, the Fed considers 3.75% to be the longer-term normal to target. Given its zero lower bound level of 0%–0.25%, the range the rate has been in since December 2008, you can see how far removed it is from normal.
For investors in Treasuries and related ETFs (TLT) (IEF) (SHY) and those who invest in the broader fixed income market via ETFs such as the Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG), the eventual rate hike will be a question of great importance.
Lockhart asked a question during his speech: “At what meeting will the FOMC raise the policy rate target above its current near-zero range?” He added, “If you are an investor in fixed-income or interest-paying assets, a lot of money may ride on the precise answer to that question.”
That said, the focus of his comments was people working in the non-financial real economy. For these people, the timing of the liftoff takes a backseat to the overall direction of the economy.
In the next article, we’ll look at Dennis Lockhart’s views on the economy and monetary policy.
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