Federal Reserve Bank of St. Louis President James Bullard spoke with Michael McKee and Tom Keene on Bloomberg TV and Bloomberg Radio this morning. He discussed Fed policy, the U.S. economy global inflation, and moving toward a more normal nominal interest rate structure.
Bullard said policy makers should consider raising interest rates at their next meeting: “You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April.”
When asked about overshooting on inflation, Bullard said: “I think we are going to end up overshooting on inflation. We have that as part of our forecast so we have for a while. That is what’s going to happen…I don’t have any problem with overshooting. You want to be as close as you can be to your inflation target, but it’s a symmetric target. You can be above or below. There’s no problem with that. So I think we are going to overshoot and hopefully they’ll follow my policy choices and we won’t overshoot very much, but I think we’ll probably overshoot.”
He added: “I think the odds that we’re going to fall behind the curve are moving up modestly here. I do think that labor markets are continuing to improve. We’ll be at 4.5 percent unemployment by the end of the year.”
Bullard criticized the forecasts, also referred to as the dot plot, arguing that they contribute to uncertainty in financial markets: ” I’ve started to wonder about the efficacy of the dot plot on the policy rate part because we’re implicitly giving some kind of forward guidance through that dot plot and I’m wondering whether that’s counterproductive at this point… I’ve thought myself about unilaterally pulling out.”
Fed’s Bullard on Fed Policy, Economy, Markets
James Bullard: We Are Overshooting on Inflation
Bullard: Get Back to Normal Nominal Rate Structure
Bullard on Market Pricing
Michael Mckee: Welcome to all of our listeners and viewers on Bloomberg Radio, Bloomberg Television, and bloomberg.com around the world. We are speaking with James Bullard. He is the president of the St. Louis Fed, considered a centrist on the Fed and somebody who follows the macroeconomic developments very closely. A lot going on in the markets these days as investors try to re-price the idea of Fed rate increases. You went from a four rate increase move in December, Jim, to two at your meeting last week, and yet markets price in still only one. What is going on? If you look at the numbers, at your forecast, you should be raising rates already. Is the dot spot a mistake? Are we confusing people at this point?
James Bullard: Well, I’ve started to wonder about the efficacy of the dot plot on the policy rate part because we’re implicitly giving some kind of forward guidance through that dot plot and I’m wondering whether that’s counterproductive at this point. When we were at zero and then we put out a forecast when we were going to come off zero, that was considered forward guidance and that was considered helpful. But now that you’re off zero and you’re projecting these things out over the next two years, the pace of increases over the next two years, you’re still implicitly giving forward guidance, and I’m not sure that I’m really comfortable giving that kind of forward guidance in this environment. In the past, you look at Greenspan Fed or Jean-Claude Trichet ECB, they never gave any kind of indication about where rates were going to go and that, I think, served a purpose because it kept people focused on, what is the data really justifying at this point, and it let market expectations move around as the data came in. But now we’ve got a dot plot that’s got these kind of lines, median lines on it, and I’m not quite sure that’s really what we want to be doing.
Michael Mckee: The Fed should get rid of it?
James Bullard: Well, I’ve thought myself about unilaterally pulling out. I suppose it wouldn’t do much good. You’d still have a lot of dots there, but I do think this important issue we have to think about, what are we really doing with this dot plot, and of course, financial markets have been talking about it a lot and we have our own communications committee that’s talked about it a lot.
Michael Mckee: I know Tom once asked the question but let me just quickly ask you, which dot are you? How many rate increases do you think —
James Bullard: Well I am not revealing my dot because I want to get out of the game of, how many rate increases this year? I want it to be meeting by meeting, we’re going to react to the data, and we’re going to take a reasonable policy that will get inflation back to target and will keep the economy on a good recovery path.
Tom Keene: This chart is a St. Louis Cardinals odds of getting to October. The blue line is the Boston Red Sox. Jim Bullard, I saw a pick up truck one night back up to the Mississippi River, and under the arches, threw your textbooks from Indiana University into the Mississippi River. Is any of this in your textbooks or to be respectful, is it in the textbooks of Mr. Rosengren or Mr. Lacker and the others?
James Bullard: No, it’s not. Central banking was turned upside down in 2008 right about the time I became president of the St. Louis Fed. It’s never been the same since.
Tom Keene: Which hymnal are you speaking from right now?
James Bullard: We have very good research staff and we work on these questions every day. I think we’ve got a lot of good ideas and good theories but it’s certainly not the same world we lived in in the 1990’s or the early part of the 2000’s.
Michael Mckee: Three of your colleagues, John Williams of San Francisco, Dennis Lockhart of Atlanta, and last night, Patrick Harker of Philadelphia, suggested yes, indeed, we should consider a rate increase in April. Do you think the economy will have developed to the point that April should be considered a live meeting? Would you consider raising rates in April?
James Bullard: I think all meetings are live meetings. Chair Yellen said so —
Michael Mckee: Well that’s the boiler plate. I’m talking about, based on the economy.
James Bullard: I think they should all be live meetings, I think it’s really hurting us that we’ve got this kind of alternate meeting thing. I think we should make all meetings ex ante identical. You should have press conferences every meeting. I’ve long been an advocate of this and that will allow the committee to come into a meeting, assess the data as we should in April, and see where we are. The data between December and March was not all that different. It didn’t look like we were that far off our path when we got to the March meeting, so in