• St. Louis Fed chief says jobs market largely normal now
  • Financial stress and risks from China have declined: Bullard

Federal Reserve Bank of St. Louis President James Bullard said a stronger labor market and reduced financial market stress are among the factors supporting the case for the Fed to raise rates for the first time since 2006.

“In October, the committee removed the key sentence citing global factors and suggested that the zero interest rate policy could be ended soon, depending on incoming data,” Bullard said Friday in St. Louis. “The market-based probabilities of a near-term end to the zero interest rate policy have increased.”

Fed Chair Janet Yellen told Congress this week that the U.S. economy was performing well and that a December rate hike is a "live possibility." The U.S. central bank has held rates near zero since December 2008 to spur growth and hiring amid the worst recession since the Great Depression.

Bullard, in remarks prepared in advance of Friday’s employment release, said the labor market was close to what the policy-setting Federal Open Market Committee judged to be full employment. The addition of 271,000 new jobs last month was the most this year, and the unemployment rate fell to 5 percent, a Labor Department report showed.

Back-to-Normal

“U.S. labor markets have largely normalized,” Bullard said. The Fed’s labor market conditions index, which includes a variety of indicators, “is well above historical norms, indicating excellent labor market health.”

The St. Louis Fed official said large levels of job creation are no longer necessary to reduce slack, so a step-down in employment shouldn’t prompt a delay. “Even with job creation as low as 130,000 per month, the employment-to-population ratio would remain constant,” he said.

Bullard said the risks from a slowdown in China are no more than was the case earlier this year. That concern led to worry of possible spillover to the U.S. and other markets, including financial turmoil, he said.

“Financial stress today in the U.S. is not particularly high compared to the last five years,” Bullard said.

Bullard said falling commodities prices have been largely responsible for inflation coming below the Fed’s 2 percent target. “Oil price stabilization likely implies headline inflation will return to 2 percent in the U.S.,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE