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The president of the St. Louis Fed, James Bullard, said Thursday that unexpected economic performance had up to now justified the rise in key rates of the central bank, which he had for a long time opposite.
While Mr. Bullard has long opposed the rate hike, "I am willing to accept" the rate hike, he said, because events in the economy gave managers sufficient reason to increase the cost of borrowing in the short term.
"We are in great shape" in the economy, Bullard told the press after a speech in Memphis, Tennessee. But he warned that the fact that the economy's performance has outpaced expectations does not mean the Fed should say more to the markets for the increases are coming.
"The idea that we need to anticipate many rate increases is what I am opposed to," Bullard said. He added that the Fed had essentially followed the rate hike trajectory that it had traced in the spring of 2017 and that the economy had "streamlined" this projected arc.
Bullard, who is not currently a voting member of the Federal Open Market Committee, which sets interest rates, has opposed the Fed's rate hike for several years, saying the economy is long period of modest growth and moderate inflationary pressures. But his colleagues largely disapproved of this point of view.
In late September, the Federal Open Market Committee raised its overnight rate target for the third time this year. It is expected to act again in December and continue to rise with increases in 2019. Most FOMC members think rate increases are needed to prevent overheating of the economy.
In his interviews with reporters, Bullard said he did not see much worry about inflation and that it would be OK if the Fed modestly exceeded its inflation target of 2%.
He added that if the economy continued to grow at a rate of 2.5% to 3% in 2019 and 2020, it was possible for forecasters to improve their vision of the potential growth rate of the economy. However, he said he needed to see higher productivity rates before he could increase his estimates of potential growth.
In his prepared remarks, Mr. Bullard stated that a modernized approach of reviewing a venerable monetary policy rule supported his belief that no rate increase was necessary at the moment.
Bullard said the Taylor rule, which suggests a level for the Fed's short-term rates based on the economy's performance, can be updated to better reflect the forecasts. inflation and the reduced impact of the labor market on price pressures.
"The integration of these developments" creates a new Taylor rule "which suggests that maintaining the current level of the key rate would be an appropriate policy over the forecast horizon," Bullard said.
Write to Michael S. Derby at [email protected]
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