Fed’s Bullard Says Near-Zero Main Rate Brought Unknown Results
Federal Reserve Bank of St. Louis President James Bullard, a voter on policy this year who has backed record stimulus, said the Fed’s cut in the main interest rate close to zero in 2008 didn’t fully consider Japan’s slump and yielded unknown results for the U.S. economy.
“The December 2008 FOMC decision unwittingly committed the U.S. to an extremely long period at the zero lower bound similar to the situation in Japan, with unknown consequences for the macroeconomy,” he said, referring to the Federal Open Market Committee.
The committee signaled it may begin to dial down unprecedented accommodation by tapering $85 billion in monthly bond buying “in coming months” based on expected improvement in the labor market, according to the minutes of its meeting last month released yesterday.
Applications for unemployment benefits in the week ended Nov. 16 declined more than forecast to the lowest level in almost two months, the Labor Department said today. Retail sales rose more than forecast last month, a sign consumer spending was resilient even during a shutdown of the federal government.
The St. Louis Fed chief said some analysis suggests that the sooner policy makers set the policy rate to zero, the sooner the economy will recover and interest rates can be returned to normal.
“I have seen no evidence that this is true during the last five years,” Bullard said. He didn’t discuss the outlook for the economy or policy in his prepared markets.
Bullard also cited mixed results from the Fed’s bailout of Bear Stearns Cos. The rescue gave investors the indication the central bank was prepared to help other firms, he said.
“In the absence of any formal policy announcement, it was unclear whether the Fed had the intention or the wherewithal to offer insurance to such a large group of firms,” he said.
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