By Ian McKendry

WASHINGTON (MNI) – Atlanta Federal Reserve President Dennis
Lockhart Wednesday said long-term inflation expectations are consistent
with the Fed’s objective and recent commodity price shocks are likely
temporary.

“At the moment, longer term measures of inflation expectations are
reasonably stable,” Lockhart said in remarks before the Council for
Quality Growth in Atlanta.

“I anticipate that over the next two years inflation will converge
to the Fed’s de facto inflation objective of 2% or a bit less,” Lockhart
continued.

He said the recent run-up in commodity prices, particularly for
food and energy are likely short term.

“The increase in inflation this year appears to reflect pressures
that were largely the result of growing global demand and some
supply-side or geopolitical shocks,” Lockhart said.

“The inflationary impact of some supply shocks is likely to be
temporary,” he added, saying prices of some commodities have already
leveled off.

While Lockhart said inflation is consistent with the Fed’s
objective, employment continues to be a problem area.

“Employment growth of the magnitude we have seen so far this year
is encouraging but will still only slowly bring down unemployment in the
near term,” Lockhart said.

“At the gradual pace I’m expecting, it could take up to three years
to get employment back to prerecession levels,” Lockhart continued.

Lockhart said he anticipates growth this year and next, to be in
the 2% to 3% range. He said 2% to 3% is modest given the depth of the
recession but that recoveries tend to be slow after a financial crisis.

He said part of the reason recoveries are usually slow after a
recession is because of the financial rebalancing that takes place,
calling it a “drag on economic expansion in the short term.”

Lockhart delved into the concept of a “high quality” recovery which
he said is one where “major imbalances are alleviated and economic
resilience is accumulating.”

Lockhart said the current recovery is demonstrating “clear evidence
of improving quality,” but high quality growth could not be completely
achieved without help from the real estate sector.

“The recovery will progress, but it will not be robust until we
work through the economy’s serious imbalances, including those in the
real estate sector,” Lockhart said.

He added that he thought the housing sector will only contribute
modestly “at best” to economic growth this year.

He also said the commercial real estate will also be a drag on the
economy but that it is showing hopeful signs of stabilizing.

“I am encouraged by the fact that the economy is increasingly on
firmer footing,” Lockhart said.

** Market News International Washington Bureau: 202-371-2121 **

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