Fed's Lockhart Says House Prices May Fall Another 15%

Atlanta Fed President Dennis Lockhart welcomed the recent rise in the U.S. dollar, but said home prices in the U.S. could fall another 10-15%.

Following a speech at an Economic Outlook Conference in Atlanta Wednesday, Lockhart said "housing prices will continue to decline," perhaps by as much as 15%.

He also welcomed the recent rise in of the U.S. dollar. "Certainly, it's been helpful," he told reporters following his speech on inflation.

In his prepared comments, Lockhart said recent measures of inflation are uncomfortably high, but that higher prices are likely more transitory than persistent.

Lockhart said he expects CPI inflation to peak at or near July's level of 5.6%.

"I expect the recent decline in oil prices will begin to reverse some of the pressures we have seen on overall inflation in the first half of the year," he said. "But the underlying global supply pressures remain tight, and demand pressures remain relatively high. As such, any relief will likely be only partial."

Lockhart said he believes current Fed policy is consistent with an easing in overall inflation, and that, given weak growth and financial market strains, the "most likely outcome" is that both headline and core inflation will fall over the remainder of 2008 and into next year.

"Note that my outlook does not require that food and energy prices fall, but simply that their rates of increase moderate," he said.

He added that inflation expectations "may have risen modestly - but not by a material degree."

While noting improvements in some markets, Lockhart said the Fed must remain vigilant, paying particular attention to markets that remain strained, including the banking sector.

Lockhart said he defends "very strongly" the actions taken by the Federal Reserve to bring stability, adding that the central bank must allow time for its policies to take hold.

By Stephen Huebl and edited by Nancy Girgis