James Bullard, President of the Federal Reserve Bank of St. Louis, spoke with Bloomberg Television and Bloomberg Radio today about monetary policy, the U.S. economy and the oil market.

James Bullard said “Zero interest rates is not the right interest rate for this economy. We are much closer to goals than we’ve been in a long time. Inflation is a little bit low, but it’s not low enough to rationalize the zero interest rate policy.”

He said: “The market has a more dovish view of what the Fed is going to do than the Fed itself… Markets should take it at face value.” He said it’s “reasonable” to expect an increase in June or July.

James Bullard: Rates At Zero 'Not Right' For U.S. Economy
Source: Bloomberg Video Screenshot

James Bullard Says Rates at Zero Not Right for U.S. Economy

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James Bullard on Bloomberg TV with Betty Liu and Mike McKee:

  • He’d like to get off zero rate sooner
  • ECB QE is positive for U.S. economy
  • Dollar not far from average over past 15 years
  • ECB QE driving down interest rates in U.S.
  • Oil price drop is ‘unambigious positive’ for U.S.
  • Markets too dovish on fed rate outlook
  • Unemployment below 5% in third quarter
  • Zero interest rate not right for this economy
  • Dollar move over last two years not surprising
  • Waiting to raise rates risks falling behind curve
  • Oil price decline appears very persistent
  • Expects longer term inflation expectations to rise
  • Long term normal fed rate is less than 4%
  • Pace of rate increases will depend on data

Bullard on Bloomberg Radio with Tom Keene and Mike McKee:

  • Inflation ‘not that far’ from fed target
  • ECB QE ‘most important international development’
  • Sees ‘very bullish factors going for U.S.’
  • QE ‘produced good results in the U.S.’
  • Unemployment to ‘fall below’ natural rate in next 2 years
  • Rate rise cycle ‘won’t be a freight train’

TRANSCRIPT: Bloomberg Television

BETTY LIU: Well for more perspective we’re joined by Jim Bullard. He’s the President of the Federal Reserve Bank of St. Louis, also Bloomberg Economics editor Mike McKee joining me as well. Jim, starting with international developments, right, as we’ve heard for the first time it seems that the Fed, the policymakers — that policymakers are in fact aware, and more aware of what is going on overseas in terms of factoring that into their own forecasts, right? So you see what’s right, what is happening in Russia. Russia surprised I think virtually every economist by cutting interest rates two percentage points. What do you make of that?

JAMES BULLARD: Well I don’t know about the Russian move in general, but certainly the Fed pays a lot of attention to global developments all the time. And we did make this small wording change in the statement, but I think that’s just reflective of the fact that we’re — we’re always talking about the global economy and how — how those factors are going to come back and affect the U.S. economy.

So if you look at past minutes, for instance, of meetings there will always be talk about various economic developments globally. So think this is just the change in the statement on that phrase is just a reflection of the reality of the discussion around the table.

MICHAEL MCKEE: You’ve got GDP lower than forecast, inflation low and unchanged market expectations for (INAUDIBLE) report inflation are falling, turmoil in Europe. Why is the Fed still on track to raise rates? A lot of people in the market are saying —

James Bullard: Boy that sounds terrible.

MCKEE: — you should be pushing it back. Exactly. That seems to be a widespread feeling out there that things are a little unsettled at the moment.

James Bullard: Now 2.6 on GDP that’s fine. And that’s not too far from what we had for tracking estimates of what it would be. We’ll see if provisions move it higher or not in the coming months, but I think there’s a lot of underlying momentum in the U.S. economy. And I think that shows up in the jobs numbers, which have been strong.

We’ve had one of the best years for job growth in 2014 since 1999, unemployment all the way down to 5.6 percent. I now think unemployment will go down below five percent by the third quarter of this year. So there’s a lot of good things going on in the U.S. economy. I think the GDP numbers just show one more in a string of positive developments for the U.S.

MCKEE: Can — can you raise rates with inflation, headline inflation falling or even stable at around one and a half percent?

James Bullard: I think as long as we feel confident that inflation will go back toward target, and right now that is my baseline projection that inflation will go back toward target, and so I think we’re certainly able and willing. Zero interest rates is not the right interest rate for this economy. We are much closer to goals than we”ve been in a long time. Inflation is a little bit low, but it’s not low enough to rationalize the zero interest rate policy. That inflation gap could rationalize somewhat lower interest rates, but it can’t get you all the way down to zero.

LIU: To zero.

James Bullard: Zero is 350 or 400 basis points from normal. You’re a long ways away from normal. That’s why I think there’s — there’s some pressure in the United States to come up off zero. Even if it came up off zero you’d be at 50 basis points or 75 basis points. That would still be extremely levels. It would still be accommodative and it would still mean inflation would had upward pressure and you’d be moving back toward your inflation target.

LIU: But these are really unusual times though, Jim. I mean is — is it possible that the dollar might be doing the work for the Fed right now?

James Bullard: What is the dollar doing do you think?

LIU: Well the dollar obvious — the — the rapid strengthening over the last couple months, right?

James Bullard: Sure.

LIU: I mean that has — that also has an effect on capping any type of any inflation expectations, right?

James Bullard: Well I think the dollar’s move is over the last year is not surprising given the specter of ECB quantitative easing. Last year at this time very few expected the ECB to take this dramatic of a step. As we went through the year the probability kept rising and rising that the ECB would take action. And finally and just recently they actually came with a very large program, open-ended style program. I think that that has what has kept global bond yields down.

I think that’s an unmitigated good for the U.S. It means lower long-term interest rates in the U.S. on top of the momentum that we already have in the economy. We’ve got low oil prices coming in. That’s helping the U.S. economy. So I think there are a lot of bullish factors for the U.S. A natural consequence of that is the euro is going to be weaker, dollar is going

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