PALM BEACH The U.S. macroeconomy is much closer to a normal state than it has been in five years, a Federal Reserve official said on Monday, adding that weak labor markets and low inflation are what is keeping accommodative monetary policy in place.
"The FOMC (Federal Open Market Committee) is much closer to its macroeconomic goals than it has been in the past five years," said James Bullard, president of the St. Louis Federal Reserve Bank, speaking at a conference in Palm Beach, Florida.
"The committee now faces a classic challenge concerning the appropriate pace of monetary policy normalization," he said.
Labor markets do not seem to be fully recovered, Bullard said, and inflation is low though moving back to target.
World shares were within touching distance of all-time highs on Monday, spurred on by the potent combination of record low global interest rates and the improving health of major economies.
The soaring stock markets, against the backdrop of near-zero interest rates from the Fed, underscored the tone of Bullard's speech on Monday.
He pointed out that despite encouraging signs of growth in the U.S. economy, the fed funds rate remains near zero and the central bank's balance sheet is large and growing.
"How quickly should the Committee move to return monetary policy to normal given improving macroeconomic conditions?" Bullard asked, adding that the issue will garner greater attention as the economy improves in 2014.
In March, Bullard told Reuters that his view is to lift interest rates in the first quarter of 2015, which is earlier than financial markets' expect. Interest rates should return to normal by the end of 2016, he said at the time.
Last month, Bullard said that while the housing and labor markets remain weak, he expects recovery through the rest of the year, and said inflation would likely move towards the Fed's desired 2 percent rate.
(Reporting by Michael Flaherty; Editing by Andrea Ricci)