Dennis Lockhart was president from the Federal Reserve Bank of Atlanta from 2007 to 2017, years that encompassed the Great Financial Crisis and the worst recession since the Great Depression. He served on the Fed’s policymaking Federal Open Market Committee under former Fed chairs Ben Bernanke and Janet Yellen, and alongside among others current Fed Chair Jay Powell.
He has long been known as someone who is a centrist, not a hawk, not a dove. Someone who knows how to help get things done. Someone who has a sixth FOMC sense that helps him sort out the various forces facing the economy and therefore the Fed, the interplay among Fed bank presidents and Fed governors, and of course, the Fed reigning Chair that lead to policy decisions.
Now he sees a Fed that is facing very difficult circumstances. Inflation is not only well above target, but still tending toward rising while the labor market is suddenly looking weaker than expected and maybe weakening even more. All this as tariffs look to both raise prices and possibly lead to less hiring.
And of course there’s a factor facing the Fed now that is nothing like anything it has faced in many years: an aggressive attack on Fed independence. The very structure of the Fed is under fire as the Trump team questions and challenges many of the most basic tenents of how the Fed defines and conducts what it sees as the best path for monetary policy.
“Well, you know, there used to be a pretty boring, stable picture. Now it's anything but boring or stable, and I think the makeup of the committee is in play, " Dennis says. “And therefore you have to say that that independence is in play.
So dive in hear what he has to say. I have previewed FOMC meetings with him for many years. And I can’t remember a time when he has seen the challenges facing the Fed to be so complicated and perplexing.
Rate cut coming 25bp 00:01:27:08
Well, let me say, this rate cut, which I think is a very high probability, has been so, anticipated, you could almost say promoted in the press, in the public and on Wall Street and such that it would certainly be a big surprise if the committee decided to hold. And I think, the opening that Powell made at Jackson Hole was to just broaden the optionality for the committee. He realistically could not commit to committee under these circumstances where there's a fair amount of ambiguity and it's debatable. What's going to happen in terms of inflation? So he was, I think, just, giving the committee options and was not specific as to timing. Of course. Having said all that, I do believe that the highest probability should be put on a 25 basis point cut.
Plausible scenarios- 00:02:36:00
But I do think there are… plausible courses of action in terms of policy. Okay. 25 basis point widely expected. Would be an acknowledgment of the new information we've gotten in the last few weeks regarding the employment market, which seems to be slowing. Certainly they want to provide some support for the for the employment situation and at the same time not abandon the fight against, elevated inflation, which remains elevated and is ever so slightly worsening. So I think 25 basis points is the most realistic. Okay. Number two, it kind of threads the needle. Okay. I and I could be way off on this, but I think they could also consider a recalibration 50 basis point move with no indication of anything in follow up. So, a one and done kind of, action that was, is meant to provide some stimulus to keep the labor market, relatively stable, but allow them to resume their focus on inflation in the later meetings of the year. I don't think that is impossible
An “interesting” meeting:battle of the dots 00:03:59:12
Okay. And I do think this is going to be an interesting meeting, because regardless of how the vote turns out and so forth, the discussion around the table is likely to show quite a divergence between the group that was calling for no rate cuts in June at the in the June SEP, and the group at that time that was calling for two rate cuts. So if you sort of roll the film forward, you may very well still have a divide on the committee between those who are inflation hawks and really think inflation should continue to be the priority. And and those and that group may very well see the employment picture as still half full, not half empty. We've sort of reverted to viewing employment as half empty, even though we're close in terms of the unemployment rate to full employment and jobs are still being created, just at a much slower pace.
Tariff uncertainty remains unresolved- 00:07:28:10
Let's just do one and get it over with at least for now. Well, a few months ago there were fed voices saying they were confident that the, inflation rate would converge to target and say, the medium term, and therefore we'd be seeing incrementally lower inflation rates. And then we we along came the tariff uncertainty. And the expectation was that much of that uncertainty would likely be resolved by this time of year, is that it was probably going to hit in June and over the summer. that date of, of clarity around the tariff impact has been pushed out, and I would argue that the question still loom is that, questions about whether the tariffs are going to just simply be a one time hit to, the inflation rate, after which the rate of change of prices stabilizes, or whether, the still to come price increases associated with the tariffs are likely actually to affect inflation expectations and create a more persistent process or more persistent dynamic.
Impact of a rate change is psychological when 25bp is at stake 00:10:44:13
…This has been the view among members of, of the FOMC for, many, many years. Is the 25 basis point here or there? Doesn't matter a great deal that it doesn't make a big impact. It it is more psychological in terms of direction than in what you might call tangible in terms of having a stimulus effect on the economy. So I, I can see, the discussion having some people make strong statements about the inflation risks that the committee is still facing. And yet voting for a rate cut. Often how people vote is not entirely aligned with what they said during the meeting, because it is it's a big decision to dissent.
Dissents? 00:12:09:17
<Dissent prospects> Could be influenced by their candidacy. I don't want to insinuate anything, but but, there may be some concern about optics that's probably going to far. Kathleen. But, I can I could see a couple of dissents. I think if if the decision is 25 basis point, the great majority of the committee will rally around that decision as a threading the needle kind of decision.
Three of Seven Governors will be aligned 00:15:09:04
…Three governors, of the of the seven, will be closely aligned. That will make for a spirited discussion, to say the least, and could conceivably, as I said earlier, create dissent even with the direction of policy, leaving, the White House and pleasing the markets and such. So, it will be an unusual set of circumstances, that said, having been through ten years of these meetings, they are conducted in a very orderly way and in a very respectful to each other way, and they're kind of stylized in the way they, the way the agenda is put together and they unfold over a two day period. …And when there is some ambiguity around what the right course of action is given, in my experience, the chair's sort of has the prerogative of expressing a preference. …if the vote were around 25 basis points, < and if I were a Committee member at this meeting> I'd vote for it.
Key aspects of the SEPs? 00:18:54:09
So, I would be paying most attention in my work up to the meeting, to the question of what happens in October and December of 2025 and maybe a carryover into the first half of 2026. Anything beyond two would make me nervous that the committee was really, falling away from its commitment to 2% inflation target. And, you know, it's been a it's been elevated for a long time.
How to think about inflation and The TARGET 00:19:31:10
One of the ways I tend to think about the inflation rate is how many years does it take for the price level to double? Okay. At at a 3% inflation rate, it's about 20 or 21 years at 2.7%, which is sort of where we have been. It's about 25, 26 years. And at 2%, it's a 35 years. I do think that there's a big difference, therefore, between a 2% inflation rate over time and a 3% inflation rate over time. And it it will it affects the consciousness of of the public and consumers. And they begin to factor inflation into their thinking. The shorter that time to doubling. And 35 years, you know, people can ignore the inflation making big decisions.
How the Fed thinks of itself 00:21:50:08
Always tougher in real time to read what's going on and to draw broad conclusions. You know, what I would say is I, as I said at the outset, this bond market, this this, securities market has really baked in in anticipation of a fall in the the policy rate and that beat that drum has been beating for weeks now and is building to a crescendo that, will make, I think, on Wednesday. A very interesting second, to, to have to endure.. Right. But but the committee operates, you know, a little bit, in a different kind of in a bubble, if you will. The committee does not view itself, in my opinion, as necessarily responsive to Wall Street. And certainly not the handmaiden of Wall Street doing what Wall Street wants. You know, the committee really views itself as serving the broad economy and the main street. America. And, in that sense is likely to defy expectations in the capital markets from time to time. The 25 they will have to believe the 25 basis point cut makes economic sense, given the totality of of the data. I think that's probably where they will come out, but they won't do it simply because of the, heightened anticipation of the capital markets around this.
Appointees come with political baggage but leave it at the door 00:26:54:12
That's a recipe for, I would say, white House control. To, to maybe undermine my argument a bit. Again, this this is just impressionistic, but when I was there, I noted that that certain people may have had political affiliations when they joined the committee, particularly the governors, but even some of the presidents were known to be this or that. But once they got into the process of making monetary policy, you could not tell what their political allegiance was, that the process of making monetary policy in a data driven, data driven kind of way really removed them from from politics and even those who had a political tag with them really just focused on what was the right policy for the economy at that time.
Handicapping the dots… 00:28:45:01
So there is simply a lot more certainty in the dots than the more speculative position that writers are in in March. So there's a big difference between the march sharp and the September QE3. So obviously, if there is a rate cut, there's going to be no one who is projecting zero rate cuts for 2025. In that respect, there's got to be some movement just to embrace the reality of the decision that's made on Wednesday. Then I would think that, given the picture of the employment market that was repainted, you know, with the benchmark revisions and re some some of the recent data, the those who may have been at zero before might even migrate to two. And then those who were very dovish before and wanted to see rate cuts would probably land on three one for each meeting for the rest of the year. So I think, there will still be some ones, but I think the median is likely to be 2 or 2 and a half, something like that.
Independence is in play… 00:30:27:07
What do you think? Well, it's, you know, there used to be a pretty boring, stable picture. Now it's anything but boring or stable. And I think the makeup of the committee is in play. And therefore you have to say that that independence is in play.
Dennis P. Lockhart
Dennis P. Lockhart became the fourteenth president and chief executive officer of the Federal Reserve Bank of Atlanta on March 1, 2007. He retired on February 28, 2017.
Lockhart was born in Bakersfield, California. He attended Stanford University and earned a bachelor's degree in political science and economics in 1968. In 1971, he earned a master's degree in international economics and American foreign policy from the Johns Hopkins University School of Advanced International Studies. He also attended the Senior Executive Program at MIT's Sloan School of Management in 1994. He served as an officer in the US Marine Corps Reserve from 1968 to 1974.
Lockhart started his career with Citicorp/Citibank (now Citigroup). From 1971 to 1978, he held various international positions in Saudi Arabia, Greece, and Iran. From 1978 to 1986, he was senior corporate officer of the Southeast office of Citibank in Atlanta. From 1987 to 1988, Lockhart was head of the firm's Latin American debt-to-equity swap investment program, designed to restructure sovereign debt.
From 1988 to 2001, Lockhart worked at Heller Financial, where he served as president of Heller International Group, which had activities in commercial banking, finance and merchant banking in North and South America, Europe and Asia. From 2001 to 2003, he was managing partner at Zephyr Management LP, a private equity firm based in New York with activity in Africa and Latin America.From 2003 to 2007, Lockhart served on the faculty of Georgetown University's Walsh School of Foreign Service, teaching in the master's program. In this role, he was chairman of the program's concentrations in international business-government relations and global commerce and finance. He also was an adjunct professor at Johns Hopkins University's Nitze School of Advanced International Studies.
Before joining the Atlanta Fed, Lockhart served as a member of the boards of directors of several companies, including CapitalSource Inc., Tri-Valley Corp., and Greenfield Holdings Credit Ltd. He was also chairman of the Small Enterprise Assistance Funds. He served on the Advisory Committee of the US Export-Import Bank and chaired the committee in 2000.
Currently, Lockhart serves on the board of directors of the Metro Atlanta Chamber of Commerce and St. Joseph's Health System. He is a trustee of Agnes Scott College and the Atlanta International School. He also chairs the World Affairs Council of Atlanta and the Midtown Alliance.
During Lockhart's tenure, the Federal Reserve faced some of the most traumatic economic events since the Great Depression of the 1930s, including the financial crisis and Great Recession. Lockhart has given many speeches on the financial crisis, monetary policy, and the economy.
Under Lockhart's stewardship, the Atlanta Fed won several awards. It was voted one of America's Top Workplaces by Workplace Dynamics in 2013. In 2012 the Atlanta Journal-Constitution ranked the Atlanta Fed number nine in the large-company category as one of the top workplaces in Atlanta.
He is currently a distinguished professor of the practice in the Sam Nunn School of International Affairs at Georgia Tech.
