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

##omc ’ s target. just as current readings of inflation give some pause, broad wage trends seem to suggest we are not yet on the cusp of full employment. the quite modest growth of wages across the economy does not seem normal given the solid growth numbers we ’ ve seen in recent quarters. inflation and wages ought to be telling indicators that the gaps are closing. their weakness is a concern. a noisy first half the first half of 2015 will present challenges in evaluating the validity of economic assumptions. i ’ ve mentioned oil prices. after seven months of decline, prices firmed in trading sessions last week, then fell again. financial market participants interpreted the firming as a positive bis central bankers ’ speeches development. a number of oil and gas sector analysts forecast that global petroleum supplies will exceed demand through the first half of the year. the dollar has appreciated by 13 percent on a trade - weighted basis since last june. exports in the fourth quarter seem to have been negatively affected by the dollar ’ s rise. i will avoid predicting exchange rates, but suffice to say that the impact of the dollar on exports, as well as imported consumer goods prices, is part of the current swirl of variables making the state of the economy harder to assess. the direction of the dollar is an aspect of the larger context of slow global growth with risk of spillover to the u. s. economy. some of the influence of soft economic conditions abroad is incorporated into my baseline outlook. in contrast, more extreme scenarios are not. i should also comment on inflation compensation in inflation - protected securities. compensation for inflation in these securities ( so - called tips ) has moved sharply lower since last summer. this decline may reflect transitory influences like falling energy costs. a less benign possibility is that investors are lowering their outlook for inflation. this could be either because their confidence is waning that the fed will achieve its 2 percent inflation target, or because they see growing risks to the continued strength of the broad economy. since mid - january, some inflation - compensation measures have shown signs of reversing. a firming in the inflation compensation data from their year - end lows is an example of the kind of encouraging development that will bolster my confidence in the medium - term outlook. to put an exclamation point on the proviso that the first half of 2015 may be noisy and hard to read, i ’ ll just catalog a few of the obvious things that might confuse true underlying conditions : oil