Fed Governor Admits He Was Clueless All Along

It was always a matter of when, not if, the financial markets would tell the Fed to stop raising interest rates. And it appears the message has been received:

Fed’s Bullard speaks against further interest-rate hikes

(MarketWatch) — A Federal Reserve official who was one of the strongest advocates of raising rates last year now believes the central bank should refrain from further boosts in borrowing costs for now.

In a speech in St. Louis on Wednesday, Federal Reserve Bank of St. Louis President James Bullard said declining interest expectations and declines in financial markets argue against further boosts in the central bank’s short-term interest rate target, which now rests at a range of 0.25% to 0.50%.

“Two important pillars of the 2015 case for U.S. monetary policy normalization have changed,” Bullard said. “These data-dependent changes likely give the [Federal Open Market Committee] more leeway in its normalization program,” he said in reference to central bankers’ plans to raise rates further this year.

“Inflation expectations have fallen further,” and with the losses seen in markets, “the risk of asset price bubbles over the medium term appears to have diminished,” he said. That takes pressure off the Fed relative to last year, when the price outlook and high asset prices pointed to a need for higher rates, the official said.

Bullard spoke in the wake of the release of meeting minutes from the Fed’s January policy meeting. Having boosted rates in December the Fed refrained from action last month. The minutes showed policy makers were struggling to come to terms with why markets were performing so badly against a relatively sound U.S. economic outlook.

So much good stuff here.

“Policy makers were struggling to come to terms with why markets were performing so badly against a relatively sound U.S. economic outlook.” Apparently the highly-trained professionals at the Fed, when gauging the health of the economy, overlooked collapsing commodity prices, a shrinking manufacturing sector and soaring levels of student and auto debt, and saw only the fictitious headline unemployment number.