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Search Site Home > Newsroom > St. Louis Fed's Bullard Discusses Recent Developments in U.S. Monetary Policy 5/19/2017 ST. LOUIS – Federal Reserve Bank of St. Louis President James Bullard addressed “Recent Developments in U.S. Monetary Policy” during his presentation at an event hosted Friday by the Association for Corporate Growth at Washington University in St. Louis. For media inquiries contact: Laura Girresch mediainquiries@stls.frb.org O ce: (314) 444-6166 Cell: (314) 348-3639 James Bullard St. Louis Fed President and CEO During his presentation, Bullard explained that U.S. macroeconomic data since the March 2017 meeting of the Federal Open Market Committee (FOMC) have been relatively weak, on balance. For instance, he noted that U.S. in ation and in ation expectations have surprised to the downside in recent months. In discussing the FOMC’s March increase in the policy rate (i.e., the federal funds rate target), he noted that the nancial market reaction has been the opposite of what would typically be expected. “This may suggest that the FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance,” he said. With the U.S. unemployment rate at 4.4 percent, Bullard also examined the relationship between unemployment and in ation and whether the current low unemployment rate may signal a meaningful increase in in ation. “Low unemployment readings are probably not an indicator of meaningfully higher in ation over the forecast horizon,” he said. In explaining these points, Bullard explored the following topics: Recent Economic Growth in the U.S. He said that real GDP growth, as measured from one year earlier, has averaged just 2.1 percent over the last seven years and that the last two years have shown very little change. “A natural conclusion is that the economy has converged upon a growth rate of about 2 percent,” he said, adding that the U.S. economy is not likely to move meaningfully off of this trend in 2017. He noted that the current estimate for real GDP growth in the rst quarter is 0.7 percent at an annual rate (according to the Bureau of Economic Analysis), and the current estimate for the year-over-year growth rate through the rst quarter is 1.9 percent. “Tracking estimates for second-quarter real GDP growth suggest some improvement from the rst quarter, but not enough to move the U.S. economy away from a regime characterized by 2 percent trend growth,” he said. James Bullard is president and chief executive o cer of the Federal Reserve Bank of St. Louis. In these roles, he participates in the Federal Open Market Committee (FOMC) and directs the activities of the Federal Reserve’s Eighth District. President's Website Speeches & Presentations Video Appearances Media Interviews Research Papers There is also the question of residual seasonality, he said, explaining how rst-quarter real GDP growth in recent years has generally been lower than in other quarters, despite the underlying data being adjusted to remove seasonal effects. He noted that the magnitude of this effect is debatable and that it may be better to use real GDP growth measured from one year earlier to gauge performance. “If residual seasonality is the issue, then second-quarter real GDP growth should be discounted appropriately,” Bullard added. Financial Market Reaction to March Policy Rate Increase He then described how the nancial market reaction to the March policy rate increase differed from what was expected. He noted that the increase was viewed in nancial markets as suggesting a policy rate increase at the upcoming June FOMC meeting as well. “Ordinarily, when the policy rate is on an increasing path, longer-term interest rates are expected to rise in tandem, both in ation and in ation expectations are expected to remain consistent with the FOMC’s 2 percent in ation target, and nancial market expectations of the policy rate path should remain consistent with the Committee’s projections,” Bullard explained. Instead, since the March decision, “longer-term yields have declined, in ation expectations have weakened, and market expectations of the policy rate path have declined,” he said. Hence, he noted that this nancial market reaction may suggest that the FOMC’s contemplated policy rate path is overly aggressive relative to incoming macroeconomic data. Slowing Labor Market Improvement Turning to the U.S. labor market, Bullard explained that labor input growth has slowed over the last two years. For example, nonfarm payroll employment growth measured from one year earlier was 2.3 percent in February 2015 and has slowed to 1.6 percent today. Growth in private hours measured from one year earlier was 3.4 percent in February 2015 and has slowed to 1.7 percent today. “Labor market improvement has been slowing, perhaps close to a trend pace, given the current labor productivity growth regime,” he said. Low Unemployment and In ation With U.S. unemployment low, Bullard discussed whether that means that in ation is about to increase substantially. Given current estimates of the relationship between unemployment and in ation, he indicated that he doesn’t expect a meaningful increase in in ation. “Even if the U.S. unemployment rate declines substantially further, the effects on in ation are likely to be small,” he said. GENERAL Home About Us Bank Supervision Careers Community Development Economic Education Events Inside the Economy Museum Newsroom On the Economy Blog Open Vault Blog OUR DISTRICT Little Rock Branch Louisville Branch Memphis Branch Agricultural Finance Monitor Housing Market Conditions SELECTED PUBLICATIONS Bridges Economic Synopses Housing Market Perspectives In the Balance Page One Economics The Quarterly Debt Monitor Review Regional Economist ST. 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