May 30, 2017
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In Tokyo, St. Louis Fed President James Bullard shared his views on reducing the size of the Fed’s balance sheet and on the appropriate U.S. policy rate. He also discussed recent readings on inflation, the U.S. price level in recent years, financial conditions, wage growth and other topics on the television program Bloomberg Daybreak: Asia.
He said that the runoff in the balance sheet, effectively communicated, will go very smoothly. On the policy rate, he said that the current rate is not very far from an appropriate rate that would keep inflation not too far from target and the labor market performing well.
Regarding inflation numbers so far in 2017, he said that they have been a little bit surprising, as they have been lower on a year-over-year basis. He also noted that inflation expectations have declined since the FOMC raised the policy rate in March.
In discussing the U.S. price level, he noted that it followed a 2 percent path from about 1995 to 2012. However, the price level has drifted lower in the past five years because inflation has been below target, and the price level is now almost 5 percent below the previously established path, he said.
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Cletus C. Coughlin
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"Rationally, let it be said in a whisper, experience is certainly worth more than theory."