Bullard Says Fed Policy Will Remain Exceptionally Accommodative

U.S. monetary policy will remain loose even as the central bank prepares to increase interest rates, Federal Reserve Bank of St. Louis President James Bullard said.

“Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years,” Bullard, who doesn’t vote on monetary policy this year, said in a speech in Frankfurt on Thursday. “Even with some normalization, monetary policy will remain exceptionally accommodative.”

The Federal Open Market Committee dropped a pledge last week to be “patient” in raising interest rates, saying instead officials would wait until they’re “reasonably confident” inflation is moving back to its 2 percent target. Stocks and Treasuries jumped on expectations the exit from near zero would be more gradual than anticipated.

“The FOMC has appropriately returned to data-dependent monetary policy,” Bullard said. “The Committee can return to more standard monetary-policy decision-making, under which an appropriate policy rate is decided at each meeting.”

Officials cut their median estimate for the federal funds rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in December forecasts. The 2016 estimate fell to 1.875 percent from 2.5 percent, according to the FOMC’s quarterly Summary of Economic Projections. Prices as measured by the Fed’s preferred gauge rose just 0.2 percent in January from a year earlier, and inflation has languished below the central bank’s 2 percent goal for 33 straight months.

Bullard has been seen as a bellwether 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.

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