dennis lockhart : a potentially momentous year for policy speech by mr dennis lockhart, president and chief executive officer of the federal reserve bank of atlanta, to the rotary club of atlanta, atlanta, georgia, 12 january 2015. * * * key points • atlanta fed president and ceo dennis lockhart, in a january 12 speech at the rotary club of atlanta, reviews the growing strength of the economy, the economic outlook for the year ahead, and the monetary policy outlook. • lockhart stresses that the policy “ liftoff ” decision will be data - dependent. • lockhart expects the annual rate of gdp growth for the second half of the year to be around 4 percent, which is strong growth. • another reason for optimism, says lockhart, is that there was more improvement in labor markets in 2014 than in any other year of the recovery. he thinks the momentum evident in the second half of 2014 will carry over into 2015, and the ongoing outlook will remain solid. • lockhart feels the fed is nearing the end of its job as defined by the extraordinary circumstances of the financial crisis and deep recession. he is looking for a new phase of policy to commence in 2015. as i look back on 2014 and look ahead to 2015, i can comfortably assert that, more and more, the u. s. economy is hitting on all cylinders. the recovery that began in 2009 is welladvanced, and we are getting closer to a point where the fed ’ s federal open market committee ( fomc ), the body that formulates monetary policy, can begin a process of normalizing the interest - rate environment. that process will begin with so - called “ liftoff ” – that is, the first increase in the policy rate. chair yellen, speaking for the committee, has stressed that the liftoff decision will be datadependent. that means we will be closely monitoring evidence of the performance of the economy as the year proceeds, and we will be assessing what the stream of economic data seem to indicate regarding the outlook. so, today i want to present my forecast of how this potentially momentous year is likely to play out. i ’ ll do this in terms of both the vital economic signs and policy. i want to give you a sense of what factors could materially change – even derail – that scenario. and i want to convey a sense of the basis on which important policy decisions ahead will be made. this is my eighth annual address to this club

protein inflation has assumed a structural character and is partly driven by demand factors. within the protein group, persistence was lower for pulses as well as “ egg, meat and fish ”, but it was markedly higher for milk. thus, the persistence of protein inflation has changed the inflation dynamics in the latter half of the 2000s. increase in demand for protein appears to be an inevitable consequence of rising affluence ( gokarn, 2010 ). 6 this process was further accentuated by renewed global food price shock during 2010 – 11. among the processed food items, the persistence of inflation for edible oils was high ( table 5 ). persistence is estimated as the sum of autoregressive coefficients of the inflation series of the relevant items ; a coefficient of over 0. 5 is considered to be an indication of persistence. “ the price of protein ”, inaugural address at the special conference in honour of dr. kirit parikh at igidr, mumbai, october 26, 2010. bis central bankers ’ speeches international price pass - through while the persistence of inflation on protein items has increased, it still has a relatively smaller share in overall wpi inflation. what matters more for the overall inflation trajectory is the nonfood manufactured products inflation which has a higher weight of 55. 0 per cent in the wpi. it averaged 4. 0 per cent in the 2000s with a moderation in the second half ( table 3 ). subsequently, there has been a sharp increase in 2010 – 11 and 2011 – 12 so far. the non - food manufactured products inflation shows a major structural break towards the middle of 2009 – 10 around the time the global commodity prices rebounded ( chart 2 ). this has also raised the question : is the non - food manufactured products inflation an imported inflation? further, analysis suggests that industrial raw material7 prices also showed a structural break in early 2009 and the average price increase has been high and volatile ( chart 3 ). moreover, the pass - through from non - food international commodity prices to domestic raw material includes non - food articles, metallic minerals, other minerals, coal, aviation turbine fuel, high speed diesel oil, naphtha, bitumen, furnace oil, lubricant, electricity for industry, cotton yarn and paper pulp with a weight of 16. 2 in wpi. bis central bankers ’ speeches prices has increased particularly in the recent years reflecting growing interconnectedness of domestic and global commodity markets ( chart 4 ). this trend is also