Federal Reserve Bank of St. Louis President James Bullard said the central bank may need to drop its pledge next month to keep interest rates low as so-called quantitative easing is brought to a close.
“I thought it was premature to try to remove ‘considerable time’ from the statement because QE hasn’t ended yet,” Bullard told reporters at a conference in St. Louis, referring to the last meeting of the Federal Open Market Committee on Sept. 16-17. “A more natural juncture would probably be the October meeting” when “QE is projected to end.”
The FOMC said last week that it expects to halt asset purchases after its next meeting, on Oct. 28-29, and reiterated a pledge to keep its benchmark interest rate near zero for a “considerable time” after the bond buying campaign had ended.
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Bullard said he would not have joined Dallas Fed President Richard Fisher and Philadelphia’s Charles Plosser, who both dissented over that decision, though he agreed with Plosser’s criticism that the pledge suggests the Fed is setting policy by a calendar rather than incoming data.
“I don’t think it is state-contingent enough,” Bullard said. “I would like to get the committee to move to something that is more data dependent.”
Calls for fresh data-dependent rate guidance have united policy makers who want to keep rates low for longer, like Boston Fed President Eric Rosengren, with those who prefer to raise them sooner, such as Plosser.
Bullard also repeated his forecast that the central bank may raise rates at the end of the first quarter of next year, based on his outlook for a robust U.S. economy.
“Our projections are for fairly strong growth in the U.S. economy in the second half of this year — over 3 percent — and actually over 3 percent again in 2015, and declining unemployment and fairly rapid jobs growth,” he said.
“If that comes to pass I think the committee will come around to my position, and we will end up with something in the first half of next year,” he said.
Fed policy makers last week projected a steeper increase in borrowing costs next year, raising the median forecast for the benchmark rate at the end of 2015 to 1.375 percent from June’s estimate of 1.125 percent. In their first forecast for 2017, they saw the rate ending that year at 3.75 percent.
Fed Chair Janet Yellen said FOMC participants probably had bumped up their forecasts of how fast interest rates will rise because they now see unemployment falling a bit faster and inflation rising slightly more quickly than they did before.
Bullard also said that he hoped an ongoing review of Fed communications would enhance transparency by having the Fed chair give a press conference at each of its eight meetings a year, up from four at the moment, as well as consider preparing a monetary policy report.
Bullard is 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 Fed bond buying.
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