The Federal Reserve has no shortage of critics. Following every meeting of the Fed’s interest-rate-setting committee, a chorus of doubters raises hackles over Fed officials’ tendency to walk back previous rate-increase projections.
Now those critics have been joined by James Bullard, president of the St. Louis Fed. In a speech Thursday in New York, Bullard lamented what he deemed an “inconsistent” streak in recent decisions holding off on rate hikes implied by Fed officials’ previous projections. “Not following through on a proposed action can damage a policymaker’s credibility,” Bullard said.
Bullard cited the March meeting of the Federal Open Markets Committee, which gathers eight times a year to decide monetary policy. At that time, the group of Fed presidents and governors voted unanimously to hold off on raising rates, citing slower-than-expected gains in prices and lingering headwinds from overseas economies.
That decision conflicted with projections set in the Fed’s December meeting, when committee members set forth a path showing four rate increases in 2016 after lifting near-zero interest rates for the first time in nine years.
Bullard called that state of affairs “time inconsistent,” explaining that “financial markets may have trouble interpreting Fed behavior in the future if this is the case.”
Though Fed officials clearly differed on the state of the economy in March — U.S. job growth firmed even as global financial stresses mounted — Bullard said there was ample justification to raise benchmark interest rates. “Certainly a case could be made that as of March, the economy had progressed about as had been expected in December,” he said.
What’s more, failure to follow through with the plans “seems to have put more weight on the global and U.S. growth downgrade,” Bullard said.
His more bullish pronouncements have come amid equally insistent warnings from Fed doves as to the fragility of the American economy. “We should not take the strength in the U.S. labor market and consumption for granted,” Fed Governor Lael Brainard said earlier this month. “Given weak and decelerating foreign demand, it is critical to carefully protect and preserve the progress we have made here at home through prudent adjustments to the policy path.”
In other words, the economy might not be stable enough to withstand several interest rate blows in 2016. And traders seem to agree, with markets for interest-rate futures implying just one rate hike this year.
Expectations for the upcoming April meeting are still in flux, though Bullard said the next rate hike “may not be far off.” In a Bloomberg interview Wednesday, however, Bullard doubted the situation would change much. Core inflation ticked up in January — and Bullard worried the economy might overshoot the Fed’s expectations — but consumer spending remained depressed in February.
“There isn’t that much data between the March meeting and the April meeting,” Bullard said Wednesday. “I don’t know where the committee will come out.”
Bullard has also expressed exasperation around the shifting interest-rate projections outlined on the Fed’s so-called dot plots that have rankled investors. “I’m wondering whether that’s counterproductive at this point,” Bullard said of the dot plots Wednesday, suggesting they might be abandoned altogether.
The rate-setting committee’s next meeting is scheduled for April 26-27.