James Bullard, President of St. Louis Federal Reserve Bank, spoke on Monday in front of a group at the Tennessee Bankers Association Annual Meeting. The speech was titled "How Far Is the FOMC From Its Goals?" The title pretty much speaks for itself.
Bullard's comments indicated that the United States version of quantitative easing was more appropriate for our market versus the negative interest rate policy that was initiated in by the European Central Bank last week.
Bullard's top view is that the Federal Open Market Committee is much closer to its goals of steady pricing (up to 2.0% inflation and full employment) than at any time in the past five years. He said that unemployment has continued to trend lower and that inflation remains low but moving back toward target.
That being said, Bullard believes that the Fed's monetary policy stance remains far from normal, even with the bond purchase tapering underway. Concerns remain about the overall labor market performance and inflation that was unexpectedly low up until very recently.
Another observance from Bullard is that two main policy actions have not been reversed so far, even when you consider the tapering of bond purchases. The first is that Fed's balance sheet is still large and increasing, and the second is that the current policy rate remains at the zero lower bound.
The last thing we would point out is that Bullard has not changed his timeline as late first quarter 2015 as the time when interest rates would start to be raised by the Fed. Note that Fed Fund Futures currently signal a May 2015 to June 2015 timeline for Fed Funds to be raised to 0.25%. It is also not until the September to October 2015 period that Fed Fund Futures signal a 0.50% Fed Funds rate, and Fed Funds Futures do not have a 1.00% Fed Funds rate priced in until the March to April of 2016 period.
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Filed under: Economy