Federal Reserve Bank of St. Louis President James Bullard said the Fed is closer to its goals for employment and inflation than at any time in five years, helping to warrant its tapering of record stimulus.
“Fed goals are within sight,” Bullard, who doesn’t vote on monetary policy this year, said today in Little Rock, Arkansas. “This helps to justify the FOMC’s tapering of asset purchases,” he said, referring to the Federal Open Market Committee.
Fed Chair Janet Yellen said May 7 that “a high degree of monetary accommodation remains warranted” with indicators for inflation and employment far from the central bank’s goals.
The Fed’s preferred gauge for inflation -- at 1.1 percent in March -- has been below the Fed’s 2 percent target for almost two years. The 6.3 unemployment rate in April compares with the median estimate among FOMC participants for full employment between 5.2 percent and 5.6 percent.
“The FOMC is much closer to its policy goals than it has been in the past five years,” Bullard said.
Fed officials in April trimmed stimulus for the fourth consecutive meeting, saying the economy has strengthened after harsh winter weather slowed growth to a 0.1 percent annual pace in the first quarter. Policy makers cut monthly bond purchases by $10 billion to $45 billion and are on track to halt buying in the second half of this year.
Policy remains accommodative because “labor markets do not seem to be fully recovered,” Bullard said. Also, “inflation remains low.”
“While first-quarter GDP growth was weak, growth in coming quarters is still predicted to be robust,” Bullard said, referring to gross domestic product. “The average quarterly pace of growth in 2014 may still be an improvement relative to 2013,” he said. The average pace of quarterly growth in 2013 was 2.6 percent.
The St. Louis Fed official told reporters after his speech the recent pickup in U.S. employment is “very encouraging.” Unemployment will probably fall below 6 percent by year’s end, setting the stage for the first Fed tightening at the end of the first quarter in 2015, he said.
“Inflation may be moving back to target as the committee has been predicting,” Bullard said. The Fed’s preferred measure for price increases may rise to 1.6 percent by the fourth quarter, he said.
“The FOMC would be ready and willing to get more aggressive if it was required,” including if inflation surged unexpectedly, he said.
The yield on the 10-year Treasury note rose 2 basis points, or 0.02 percentage point, to 2.51 percent, at 2:06 p.m. in New York, while the Standard & Poor’s 500 Index fell 0.1 percent to 1,868.68.
Bullard’s views last year swayed investors, with his speeches and interviews influencing the yield on the 10-year U.S. Treasury note more than any other Fed official including former Chairman Ben S. Bernanke, according to an analysis by Macroeconomic Advisers LLC, a research firm cofounded by former Fed Governor Laurence Meyer.
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. That was followed by a second round of bond buying.
Bullard joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008. His district includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.