Bullard: Fed rate hike "may not be far off"
Federal Reserve President James Bullard said Thursday the central bank’s next interest rate hike “may not be far off,” if “the economy evolves as expected,” opening the door to an increase in April or June.
His remarks appeared more bullish on a near-term rate increase than both the Fed’s official statement and Fed Chair Janet Yellen’s comments at a news conference following policymakers’ two-day meeting last week. The Fed raised its benchmark rate from near zero in December for the first time in nearly a decade but has stood pat at two meetings since then.
In a speech to the New York Association of Business Economics, Bullard raised the question of whether the Fed harmed its credibility by not lifting rates in March. He noted that between December and March, the economy largely progressed as the Fed anticipated in its December meeting forecasts.
He said economic data showed that the U.S. and global growth outlook “was downgraded somewhat,” the U.S,. labor market outlook “was upgraded somewhat” and other economic measures were “about the same.” For example, financial markets -- including stock prices, the dollar and corporate borrowing costs -- were unfavorable early in the year but settled down by last week’s meeting.
Bullard concluded that the Fed did not have to raise its benchmark rate in March, noting policymakers put more weight on the global and U.S. growth downgrade than the brighter labor market forecast.
“The difference in macroeconomic outcomes between moving at one meeting versus another is currently small,” he said.
Yet, he added, “the relatively minor downgrades contained in “the Fed’s March forecasts” suggests that the next rate increase may not be far off provided that the economy evolves is expected.”
That view appears to be more aggressive than the Fed’s overall posture last week. In a statement, the Fed declined for a second straight meeting to assess the balance of risks to its outlook. Many economists expected the improvement in financial conditions to lead policymakers to assert that risks were “nearly balanced.”
And Fed policymakers' forecasts indicated they now expect just two quarter-percentage point rate hikes in 2016, down from the four increases they project it in December. They were particularly concerned about stubbornly low inflation.
Bullard is considered among the Fed's more "hawkish" policymakers, meaning he's often more concerned about staving off higher inflation than stimulating growth. As a result, his views may not necessarily reflect Yellen's and those of other key policymakers.