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Economy

Fed's Bullard hints rate hike possible in April or June

St. Louis Fed President James Bullard

NEW YORK -- The U.S. Federal Reserve may raise interest rates in April or June, St. Louis Fed President James Bullard said in a recent interview with The Nikkei.

     Bullard, a voting member of the Federal Open Market Committee, predicted that the FOMC's next two scheduled gatherings in April and June will be "live meetings" and that the committee "could move."

     At its December meeting, the Fed's policy-setting board decided to end its de facto zero interest rate policy, which had been in place following the collapse of Lehman Brothers. It held off on a hike in January and March amid global market turmoil sparked by the stock sell-off in China.

     Edited excerpts from the interview follow.

Q: How do you see the health of the U.S. economy right now?

A: I think the U.S. economy is growing at a moderate pace. I think the labor markets are continuing to improve. I think unemployment will be below, or at, 4.5% at the end of this year, which will be a very good unemployment rate for the U.S. The median unemployment rate over the last 50 years is about 5.8%, so 4.5% is very low compared to that. And I think inflation has been depressed because of the global oil prices being low, but now I think inflation will start to rise up. And even core inflation looks like it's heading back toward 2% and will eventually exceed 2% in 2017, I think.

Q: In that scenario, how do you see the possibility of raising interest rates within a couple of months?

A: I think we'll take it one meeting at a time, and we want to assess the data at each meeting. I think we don't want to prejudge any particular meeting about what the committee might do. So we'll see how the data comes in, and we'll evaluate it at that time. When we came into the first part of 2016, we got a lot of volatility in global financial markets, but most of that seems to have gone away at this point. So we'll assess the situation when we get to April.

Q: Do you see any possibility of another rate hike in April or June?

A: Well, the April meeting and the June meeting are definitely live meetings, and the committee could move at those meetings, but we'll see what the data looks like at that point. So I think we don't want to pre-commit one way or the other on what we're going to do.

Q: There was a certain market volatility in January and February, especially in emerging markets. Do you think this was any part caused by the U.S. starting raising rates for the first time in nine years?

A: I think on the emerging markets being more affected by the Fed rate hike, that's been an issue that's been discussed at length for certainly the two years previous to the actual rate hike. So I think there was plenty of time to prepare for that, and I think for many countries they were certainly ready for it. We are trying to go gradually, we're trying to make it clear what the intentions are, and I think that foreign economies have the chance to run their own monetary policies in reaction to that, and they can do so as best they can.

Q: You are one of the long-serving presidents as an FOMC member. This is your third year as a voting member of FOMC. Is it different, from nonvoting and voting?

A: I don't really think so. Fed is a consensus organization, so for that reason I don't think it makes that much sense to talk about voting. Because there aren't a lot of votes that are decided by one vote. The game is very different. I think the game is to try to make the best arguments that you can at the FOMC and see if you can sway the other people to your point of view, and then if you do that, then the whole committee will move in your direction. So I think it's about trying to make the best arguments you can and see if everyone will join you. Especially the chair -- if you can get the chair to move in your direction, then you'll have an influence on policy.

Q: I think that the Fed's communication is better than it was before, but what is your opinion about the dot plots? They're easy to understand, but sometimes may cause confusion.

A: Well, I've started to wonder about the dot plots, whether they're really giving the right message or not. And especially the part about the policy rate. I think it's good to put out a forecast of unemployment and real GDP growth and inflation. Those are all good. But the question is about the future policy rate, whether that's helping or not. It is not a promise about what we're going to do, but is really based on how the economy evolves. But we've used the dot plot in the past to try to convey forward guidance about where the committee might go. When we were at zero, we would say, "Oh, look, we're going to be at zero for quite a while." So it was a promise about what we were going to do in the future. And now that we've come off zero, and we draw this line that goes like this, then we're saying, "Oh, no, that's not a promise." So I think it is creating confusion in that way, and I've encouraged my colleagues to try to think about this more, and think about what we are really trying to do with this dot plot.

Q: What do you think about the negative interest rate policy introduced by ECB and BOJ?

A: I don't think negative interest rate is even close to being considered in the U.S. as an actual policy. We looked at it a few years ago, we could have done it at that time, we decided not to. The BOJ obviously has gone in this direction, ECB has gone in this direction. Market reaction has been mixed. And you know, I think the jury is out as to how effective it really is.

Interviewed by Nikkei staff writer Yamato Sato in New York.

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