MNI INTERVIEW2:Ex-Fed Lockhart: No Need To Cut 'Accommodative'

By Jean Yung

     WASHINGTON (MNI) - There is no need for the Federal Open Market Committee

this week to drop the word "accommodative" in describing its monetary policy

stance, as the fed funds rate remains below estimates of its neutral setting,

former Atlanta Fed President Dennis Lockhart told MNI.

     "I don't think they have to change it at this meeting. It remains factually

accurate," Lockhart said in an interview.

     For years after the financial crisis, the FOMC has made the pledge to keep

rates low, noting in its post-meeting statement: "The stance of monetary policy

remains accommodative, thereby supporting strong labor market conditions and a

sustained return to 2 percent inflation."

     However analysts have homed in on a possible revision of the phrase in the

run-up to this week's meeting, when officials are expected to lift the target

range of the fed funds rate to 2% to 2.25%, closer to their estimates of policy

that is neither accommodative nor stimulative.

     Lockhart sees the FOMC having a "reasonable consensus" for the neutral rate

in the 2.75% to 3.0% zone.

     "With the funds rate set below neutral, policy remains accommodative," he

said, "and the stance is supporting labor market conditions and supporting

sustained inflation readings around target."

     That said, he expects officials to push for adjusting the phrase soon, as

well as to fine-tune the Fed's expectation for "further gradual increases" in

the fed funds rate, another piece of longstanding guidance in the statement.

     "The Committee might feel the sentence as it stands is getting stale, and

the press conference Wednesday would be a good time to recharacterize the stance

of policy," he said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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