April 10, 2017
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In Australia, St. Louis Fed President James Bullard shared his views on the latest U.S. employment report, real GDP growth in 2017, inflation and the outlook for monetary policy. He also discussed the Fed’s $4.5 trillion balance sheet during an interview on the television program “Bloomberg Daybreak: Asia.”
While the recent employment report was a bit weaker than expected on payroll employment growth, he said that it is consistent with the St. Louis Fed’s prediction of 2 percent real GDP growth for 2017. In discussing inflation, he said that, on the whole, it is close to the Fed’s 2 percent target and that he expects it to remain there over the forecast horizon. His view is that the policy rate (i.e., the federal funds rate target) doesn’t have to be raised that much from where it is now in order to keep inflation and unemployment about where they are currently. Regarding possible changes in fiscal policy and their impact, he said that the Fed can wait to see how these policies develop.
During a discussion of the Fed’s balance sheet, he noted that current monetary policy is putting downward pressure on the medium and longer end of the yield curve and upward pressure on the short end. Permitting some of the balance sheet to run off by ending the reinvestment policy would allow the entire yield curve to adjust to policy rate increases in a more natural way, he said. It would also create some policy space in case the Fed needed to turn to quantitative easing in a future recession. He noted that the runoff would occur gradually over several years until the balance sheet reached a more reasonable size, which he said might be in the $2 trillion range.
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Executive Assistant to the President
Senior Vice President and Chief of Staff to the President
Cletus C. Coughlin
Senior Economist and Special Assistant to the President
"Rationally, let it be said in a whisper, experience is certainly worth more than theory."