(CEP News) - Nationalizing banks is “substantially” off the table, Federal Reserve Bank of Atlanta President Dennis Lockhart said following a speech in Alabama.

Speaking to reporters after his speech, Lockhart said he was “unaware” of any serious consideration of bank nationalization.

However earlier in the day, bank stocks plunged on fears that substantial losses could lead to the U.S. government taking control of banks, which could harm shareholders.

Lockhart said correctly valuing assets is a central challenge to fixing banks and that the Treasury is not ruling out guarantees of toxic assets.

Lockhart said that despite the “extremely weak” state of the U.S. economy at present, he expects a modest recovery by the second half of the year.

The Fed president said the economy still faces a number of obstacles, including weak credit markets, a housing market weighed down by excess supply and low household and business confidence.

Nevertheless, Lockhart said many forecasts, including his own, see “catalysts” for the start of a “modest” recovery in the second half of the year.

He said there are signs that lower mortgage interest rates are starting to help housing markets. He also called the strength in January retail sales, which showed a pickup in consumer spending, “encouraging.”

However, Lockhart stressed the importance of a comprehensive and coherent policy response in order to ensure a quick recovery to growth.

“We have reached a pivotal juncture. After a rapid onset of problems in the economy and financial system - both global and national - we’ve reached a point where incremental responses must proceed to something more comprehensive, scaled, and coherent,” Lockhart said.

“I believe the composite policy approach is correct in focus and intent, and now the devil is largely in the details and implementation,” he said.

Lockhart also said he will be watching the financial conditions of emerging markets for stresses, as well as growing protectionist sentiment in the U.S.

On inflation, Lockhart said it’s at an “acceptable” level and that deflation is a “concern,” though not a major one right now.

By Stephen Huebl, shuebl@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca

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Posted in Categories: Economy, Releases, USA.

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