Fed’s Bullard Urges No Rate Hikes With Inflation Below 1.5%

Federal Reserve Bank of St. Louis President James Bullard, who has supported record Fed stimulus, said the central bank should pledge not to raise the benchmark interest rate as long as inflation is below 1.5 percent.

“It would signal we are serious about defending the inflation target from the downside,” Bullard said today in a Bloomberg Radio interview from Jackson Hole, Wyoming, with Kathleen Hays and Vonnie Quinn.

The Federal Open Market Committee has pledged that interest rates will stay exceptionally low “at least as long” as the jobless rate exceeds 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent.

The Fed’s preferred gauge of inflation showed prices rising 1.3 percent in the 12 months ended June, well below the central bank’s 2 percent target. The Fed cut the main interest rate to zero in December 2008 to spur economic growth and combat unemployment.

“One thing I’ve suggested as a possible way to go is to have a lower threshold for inflation, 1.5 percent,” Bullard said. “It would complement the fact that we have a 2.5 percent upside on the inflation rate.”

Bullard, who calls himself the “North Pole of inflation hawks,” has been viewed as a bellwether for investors because his views have sometimes foreshadowed policy changes. He published a paper in 2010 entitled “Seven Faces of the Peril,” which called on the central bank to avert deflation by purchasing Treasury notes.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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