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April 15, 2014

Fed policy maker warns on low rates stance

“The US Federal Reserve’s plan to keep interest rates low even once the economy is back to normal could risk a policy mistake, a Fed policy maker has warned in an interview with the Financial Times.

“James Bullard, president of the St Louis Fed, said he did not see a persuasive reason to think interest rates should be below their long-run level in 2016, if unemployment and inflation are back to normal.

“His comments highlight divisions on the rate-setting Federal Open Market Committee about the interest rate guidance, adopted in March, with different Fed policy makers giving different reasons to justify it.

“It could lead to a policy that was too low for too long,” said Mr Bullard. “My own dot [interest rate forecast] is at the 4 or 4.25 per cent level because I thought that was the logical thing to say about 2016 at this point.”

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Read full Financial Times article here.

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