Former Atlanta Federal Reserve president Dennis Lockhart, speaking a day after monetary-policy makers laid out their interest-rate outlook for the next few years, indicated in a Thursday television interview how tightly, in his mind, concerns about the U.S. economy and public health are now interwoven, saying:
“‘The direction of the economy is still virus-dependent.’”
Lockhart, speaking to CNBC, said what he worries about the most is a “major reversal” in the progress that’s been made toward containing the virus, and that such a reversal can’t be entirely ruled out.
Lockhart’s comments came as some rate traders cast some doubt this week on whether the central bank will get as far as it thinks it can in raising policy rates to contain inflation. Widely followed U.S. Treasury yield spreads flattened on Wednesday — even though Fed officials penciled in a total of seven rate hikes between 2022 and 2024, and said the tapering of bond purchases “may soon be warranted.” Those spreads have since stabilized.
“We live in a world of multiple variants we are watching closely. That’s where the risk lies,” said Lockhart, who retired in 2017 as president of the Federal Reserve Bank of Atlanta. He added that “transient” inflation “now means longer than a few months.”
With the global tally of confirmed COVID-19 cases climbing above 230 million as of Thursday, the U.S. is averaging more than 2,000 deaths a day, according to a New York Times tracker, or the most since late February.
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On Thursday, U.S. stocks jumped, with the Dow Jones Industrial Average
DJIA,
gaining more than 500 points, as the S&P 500
SPX,
and Nasdaq Composite Index
COMP,
also extended their gains after the Federal Reserve delivered no surprises on Wednesday. Meanwhile, Treasury yields rose across the board, with the 10-year rate
TMUBMUSD10Y,
rising to as high as 1.38%.
