Fed VP talks stimulus at Leadership Sevier meeting

Sep. 26, 2013 @ 11:58 PM

Bankers, local officials and members of Leadership Sevier heard from one of the region's foremost economic figures Wednesday at a luncheon at the Sevierville Convention Center.

Dr. David E. Altig, the executive vice president and director of research at the Federal Reserve Bank of Atlanta, spoke to the group on the Federal Reserve's recent decision to continue quantitative easing (QE3) — the buying of Treasury bonds and mortgaged-backed securities — in attempt to help stimulate the economy.

Altig is ann economist with a vast set of qualifications, including serving as an adjunct professor of economics in the graduate school of business at the University of Chicago and a stint as vice president at associate director of research at the Federal Reserve Bank of Cleveland. He had a great way of explaining detailed, complicated financial matters in easy-to-understand terms.

And the picture he painted was not rosy.

"From what I read in the papers, people were a bit surprised about the decision (to continue the quantitative easing program last week)," he said.

Using an animation of a child throwing money out the window, Altig got laughs as part of an illustration of the Fed's $85 billion-a-month program.

Though many signs indicate the economy isn't improving as much as expected, Altig did stress that some progress has been made since the program launched a year ago.

He pointed to the fact that the unemployment rate has receded by nearly a percentage point since then as a positive step.

Though Fed chairman Ben Bernanke hinted at the possibility of increased interest rates back in May with the predicted continued success of the plan, Altig said he now believes rates will remain level in the foreseeable future — at least until the unemployment rate dips significantly, to around 6 1/2 percent.

Disappointing second quarter growth reports were to blame for the Fed's decision to shy away from interest rate increase and a possible slowdown of the purchasing of the mortgage-backed securities.

"(Interest rate increases and a slowing to the quantitative easing) is a long way from here," he said. "Six and half (unemployment) looks like it's down the road quite a bit."

Areas that have not improved as expected were inflation and labor markets.

"Reality did not cooperate with the view of how the economy was supposed to evolve when we were thinking about it back in June."

Altig discussed at length the ins and outs of the Fed's duel role of controlling inflation and maximum sustainable growth and employment.

"Inflation does not seem to be a problem now," he said. "Growth and employment does seem to be a problem."

Questions from the audience included queries on the chances of interest rate change in the near future and the affect the Affordable Care Act has had on employment.

As for the ACA, Altig said thatit's still too early to tell, although there is a belief employers may be wary of hiring until details and implementation of the health care bill are finalized or at least more clearly understood.

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Billy Carroll, president and chief executive officer of Sevierville's SmartBank, was key to getting Altig to speak on Wednesday.

"This has been a process," Lori Moore, Leadership Sevier's membership chair and vice chair of the Leadership board, said. "I asked (Carroll) over a year ago if he thought we could get someone of Dr. Altig's caliber here, and Billy made that happen for us," 

Carroll, who serves as a Nashville branch director for the Federal Reserve Bank of Atlanta, contacted Altig, and the economist responded positively to the invitation.

"We try to do what our directors ask," Altig said after the lecture.