Fed's Bullard says U.S. jobless rate expected to fall below six percent this year

HONG KONG Wed Mar 26, 2014 4:01am EDT

James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2013. REUTERS/Brian Snyder

James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2013.

Credit: Reuters/Brian Snyder

HONG KONG (Reuters) - The U.S. unemployment rate will fall below 6 percent by the end of this year, a Federal Reserve official said on Wednesday, offering a bullish view on the country's economy after central bank comments sent shock waves through financial markets last week.

James Bullard, president of the Federal Reserve Bank of St. Louis, said that the outlook for the U.S. economy is "quite good," despite data from early in the year.

"The biggest thing is that unemployment has come down more quickly than expected," said Bullard, speaking on a panel at the annual Credit Suisse investor conference in Hong Kong.

He added later during a question and answer session that more progress is needed in the labor market before U.S. policymakers can consider raising interest rates.

Bullard is known to be one of the Fed's more hawkish policymakers. He previously advocated for a rate hike as early as 2014, a stance he appears to have backed away from.

U.S. monetary policy tightening took center stage last week after a two-day policy meeting, when the Fed said it expected to keep benchmark interest rates near zero for a "considerable time" after it wrapped up a bond-buying stimulus program, which it is widely expected to do toward the end of the year.

Pressed on the statement at a news conference afterward, Fed Chairman Janet Yellen said the phrase "probably means something on the order of around six months or that type of thing." Stocks and bonds immediately tumbled as traders took the statement to suggest rate hikes could come sooner than they had anticipated.

Bullard has joined other Fed officials in playing down the "six months" comment from Yellen, saying it was in line with what the private sector was anticipating. He repeated that view on Wednesday.

The unemployment rate for February rose to 6.7 percent from a five-year low of 6.6 percent as Americans flooded into the labor market to search for work.

But the rate hovering around the Fed's previous 6.5 percent benchmark has raised the prospect of the central bank moving to push up rates more quickly than some in the market previously expected.

Fed officials appear increasingly worried that keeping policy so easy for so long could encourage investors to take too many risks, building bubbles that may eventually pop and roil financial markets.

The U.S. economy is "set for a pretty good year," Bullard said on Wednesday. "Despite the spate of weaker data in the January, February time frame."

The Fed has held rates near zero since late 2008 to help the economy recover from the 2007-2009 recession.

Bullard was asked about where he saw interest rates in 2016, at which point he referred to his "dot."

The Fed introduced a "dot chart" in its January 2012 economic projections. Each dot represents the view of an individual policymaker on how they see the appropriate level of interest rates for the coming few years.

"I'm here to tell you that my dot has not changed," Bullard said.

Data on Tuesday showed U.S. consumer confidence surged to a six-year high in March and house prices increased solidly in January, positioning the economy for stronger growth after a weather-induced soft spot.

(Additional reporting by Saikat Chatterjee and Twinnie Su; Editing by Kim Coghill)

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Comments (2)
Only a Federal Reserve governor could take the hopelessly inaccurate and meaningless official unemployment rate seriously or think that changing the “target” rate of interest for 24 hour loans would have any impact whatsoever on the real economy of jobs, production, and tax collections.

Mr. Bullard is a “Quant” – that is the generation of economists trained as “scientists” rather than worldly philosophers familiar with the institutions of the real economy. They primarily study how useless data relate to theories they are not worldly enough to know are obsolete and don’t apply to an economy such as that of the US oftoday.

The idea that an interest rate set by a central bank is significant for an economy was presented by Hayek and Keynes eighty years ago for the UK economy as it then existed. And it was significant – being the wholesale price of money for banks to loan to their retail customers. The Fed’s “target rate” is totally different – no bank will borrow for 24 hours to get money to loan for months and years, let alone borrow it if their are no retail borrowers because the economy is in a long term depression.

The quants spend their days studying how shaky data apply to obsolete theories from yesteryear, not the theories that apply to today’s real world such as those of John Lindauer and the late George Stigler.

By not analyzing the economy in terms of current theories applicable to today’s economic structure. They, in essence, are the economics equivalent of the Russian medical researchers who to this day study the size of leeches used in the 1930s blood pressure medicine instead of modern pharmaceuticals.

The problem is that years ago our economics graduate schools began turning out quasi-mathematicians instead of economists who kept pace with the evolving real world. They demonstrated their expertise by analyzing inapplicable theories with inappropriate and inaccurate data. Thus to this day they think in terms of the official unemployment rate and the target rate. Until these obsolete leech studying doctors of economics are replaced we’ll have no recovery and our economy will continue to sink further and further below its capacity.

Mar 26, 2014 9:59am EDT  --  Report as abuse
Mr Bullard is an economist of the “Quant” variety – those who were educated in the theories of Hayek and Keynes that applied to the economy of the UK as it existed eighty years ago (instead of those of John Lindauer and the late George Stigler for today’s US economy.) Then spent their careers attempting to apply today’s data to yesterday’s theories.

For example eighty years ago the “bank rate” set by the UK central bank was indeed significant. It was the wholesale price of money. Only an “Quant economist” or Federal Reserve policy maker could be so unworldly to think and act as if the Fed’s “Target Rate” for 24 hour loans is comparable to the UK bank rate. It isn’t. Can anyone but such people be so unworldly as to believe that a US bank will borrow money for 24 hours and loan it out for months and years, and think that there would be borrowers after years of depression.

The problem is that our graduate economics departments after Hayek and Keynes taught their theories for the UK economy of yesteryear instead of those of John Lindauer and the late George Stigler for the US economy of today. In essence they stopped educating economists and starting educating “scientists” capable of relating today’s data to yesterday’s theories.

The Bullards of world are economics equivalent of the Russian professors who prove they are “scientists” by using advanced statistical techniques and econometrics to analyze and prescribe the size and varieties of leeches used to cure high blood pressure instead of modern pharmaceuticals.

The sad reality is that there is an intellectual and recognitional time lag in the groves of academe because its practitioners are invested in old ideas and policies and value students who are naive and unworldly enough to believe them. Hello Mr. Bullard and those who published your articles and think you are a worldly modern economist.

T

Mar 26, 2014 11:58am EDT  --  Report as abuse
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