St. Louis Fed’s Bullard Discusses the Path Forward for U.S. Monetary Policy

Federal Reserve Bank of St. Louis President and CEO James Bullard

Bullard: Fed can ‘wait and see’ how the U.S. economy develops before further adjusting the fed funds rate target.

Federal Reserve Bank of St. Louis President James Bullard addressed “The Path Forward for U.S. Monetary Policy” during his presentation Friday at the annual conference of the Illinois Bankers Association in Nashville, Tenn.

Bullard explained that current data readings suggest the Fed can wait and see how the economy develops before making any further adjustments to the policy rate (i.e., the federal funds rate target).

He noted that the U.S. economy remains in a low-growth, low-inflation, low-interest-rate regime, and that the current level of the policy rate is likely to be appropriate for this regime over the forecast horizon. “Many future developments could impact this policy path, but the Fed does not need to pre-empt any of them,” he said.

In explaining this view, Bullard explored the following considerations:

Low Growth, Low Inflation and Low Interest Rates

Bullard explained that recent data indicate that the growth in real gross domestic product (GDP) remains consistent with the low-growth regime of recent years. He noted that the current estimate for real GDP growth in the first quarter is 1.2 percent at an annual rate (according to the Bureau of Economic Analysis). He also observed that tracking estimates for second-quarter real GDP growth suggest some improvement from the first quarter, but not enough to move the U.S. economy away from a regime characterized by 2 percent trend growth. Bullard added that real GDP growth measured from one year earlier has averaged 2.1 percent over the last seven years.

“The 2 percent growth…

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