Atlanta Fed President Dennis Lockhart Interview with WSJ

The US economy is doing better

“I think the U.S. economy is expanding at a modest pace. The second quarter (gross domestic product) number—which was 1.1 (percent annual rate of growth), just revised slightly yesterday—I think overstates the slowdown or a slowdown. We have been looking through that number to an account in the GDP accounts called real final sales, which is GDP less inventory and what we see there is a better picture and a more consistent picture over the last few quarters. So I think the economy is chugging along, and I’m not one who is interpreting the headline GDP number as somehow suggesting that we have slowed from what was already a slow expansion.”

A more settled global risk environment

“…when you go all the way back to the beginning of the year, you had a lot of things related to China—the Chinese equity markets, the Chinese slowdown spilling over to emerging markets—and then later there was the buildup to Brexit. I think we’re past those things, and the overall global risk environment is a bit more settled in my opinion. So I think really, for me, the focus is on the domestic economy.”

On raising interest rates

“I’m ready to talk about it… knowing what I know today, if the economy in the next few weeks performs consistent with my sense of the economy, then I think we ought to have a serious discussion at the September meeting. So I, in no way, rule out September and look to December or look to even the November meeting. ”

They are watching from a distance the phenomenon that is negative interest rates

“I don’t want to encourage the view that the (Federal Open Market Committee) or the Fed is in any serious way considering negative interest rates for this economy. I view it as an interesting experiment that’s going on elsewhere—fortunately, I think. We’ll see what the consequences of negative interest rates and the results that they produce…there could be institutional damage over time with negative interest rates, and it bears watching in Europe and Japan. ”

On the long term impact on negative interest rates

“One is real damage to the financial system through banks and other intermediaries like life insurance companies or insurance companies in general that depend upon fixed-income investments or lending that is priced off of short-term interest rates. Even in our low-rate environment in the United States, we are seeing some of those institutions really express a lot of stress…When you go to negative interest rates, you can—in theory, at least, you can really do some damage to some important industries…Do I see any direct evidence of that yet? I think it’s probably too early.”