Bullard: Rate Hike in Q1?
Last week's Bloomberg article, "Bullard Predicts Fed Rate Increase in First Quarter of 2015," says "Federal Reserve Bank of St. Louis President James Bullard predicted the central bank will raise interest rates starting in the first quarter of 2015, sooner than most of his colleagues think, as unemployment falls and inflation quickens. Asked about his forecast for the timing of the first interest-rate increase since 2006, he said: "I've left mine at the end of the first quarter of next year. The Fed is closer to its goal than many people appreciate." Bullard said in an interview with Fox Business Network, "We're really pretty close to normal." The article continues: "In quarterly forecasts released June 18, Fed officials said they expected the benchmark rate will be 1.13 percent at the end of 2015 and 2.5 percent a year later, higher than they previously forecast. The forecasts, represented as dots on a chart, don't give the quarter in which the first increase is expected to occur." Bullard provided some additional commentary speaking at the Council on Foreign Relations in New York City on June 26. He told the audience: "Many have argued that FOMC policy over the past five years has been to keep real interest rates low, and that these low real yields have impaired the returns of those saving for retirement or in retirement. In my opinion, Fed policy generally and quantitative easing in particular have influenced the real yield earned by savers. The question is then whether the Fed helped or hurt the situation by pushing real yields lower during the past five years. This hinges on whether credit markets have been functioning smoothly during the period when quantitative easing has been a popular policy. If credit markets were working perfectly or nearly perfectly, then the Fed intervention to push real yields lower than normal was unwarranted and the low real yields were indeed punishing savers. My University of Chicago economics instincts give some credence to this view. At the same time, it seems odd to argue that credit markets were working perfectly or nearly perfectly over the past five years, in the aftermath of one of the largest financial crises the country has ever experienced, and one that was largely driven by mortgage debt run awry. The policy of the FOMC has been that, on balance, low real yields will help repair the damage from the crisis more quickly, and I have largely sided with the Committee in this judgment. As time passes, however, it becomes more and more difficult to argue that credit markets remain in a state of disrepair, and thus harder and harder to justify continued low real rates."
