Is Bullard changing sides again? Before the FOMC meeting, he indicated that he could not support a further rise in the funds rate because of the continued decline in market-based measures of long-term inflation expectations. In his first remarks after the meeting, though focused on a theoretical discussion of neo-Fisherian concepts, the emphasis returned to the importance of normalization. Given that the FOMC’s goals have been “met,” the policy settings are still “extreme.” The tone of his remarks may reflect the recent upturn in both core measures of consumer price inflation and some measures of longer-term inflation expectations. Still, his focus was on medium-term policy, and did not explicitly signal what he sees as the appropriate timing of the next move. His is the first head to count regarding near-term policy inclinations, and these comments may signal a change in his leanings. However, we’re still very far from the June meeting, and his views will remain very much subject to the data between now and then.
Revealing quote:
- Bullard (3/17): “While the FOMC’s goals have been met, the FOMC’s policy settings remain extreme… Prudent policy suggests edging the policy rate and the balance sheet toward more normal levels.”