Atlanta Fed President and CEO Dennis Lockhart, discusses ways that public pensions and the broad economy interact.
• Lockhart says that state and local government spending cuts can become a headwind in a downturn and subsequent recovery, and pension funding gaps can exacerbate this tendency. But he doesn’t see the underfunding of public pension funds as a systemic risk.
• Lockhart believes the time to address funding gaps is before the next downturn arrives.
• Lockhart says that since the recession ended, the U.S. economy has grown at an average annual rate of 2.1 percent. His baseline forecast is for moderate growth with continuing employment gains and a gradually rising rate of inflation.
• Consistent with the picture of moderate growth, Lockhart expects the normalization of monetary policy—that is, interest rates—to begin sometime this year, and to proceed gradually, in an environment of low rates for quite some time. ….