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Search Site Home > Newsroom > St. Louis Fed's Bullard Discusses the Question of When U.S. In ation Will Return to Target 11/14/2017 LOUISVILLE, Ky., – Federal Reserve Bank of St. Louis President James Bullard gave remarks on “When Will U.S. In ation Return to Target?” at the Economic Update Breakfast hosted by the St. Louis Fed and the Association for Corporate Growth. In his talk, Bullard discussed the state of in ation, real economic performance and nancial conditions in the U.S., and why these factors suggest the current level of the Federal Reserve’s policy rate (i.e., the federal funds rate target) “is likely to remain appropriate over the near term.” 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 The 2017 In ation Surprise Bullard noted that the U.S. in ation rate has been below the Federal Open Market Committee’s (FOMC’s) 2 percent in ation target since 2012. “In ation data during 2017 have surprised to the downside and call into question the idea that U.S. in ation is reliably returning toward target,” he said. He noted that the FOMC’s current median projection for core PCE in ation is 1.5 percent at the end of 2017. “If the Committee is going to hit the in ation target, it will likely have to occur in 2018 or 2019,” he added. He said that the two most cited factors that could drive in ation higher are in ation expectations and a faster pace of economic expansion. In ation Expectations Bullard explained that one important in uence on actual in ation is the state of in ation expectations. “Expected in ation measures based on Treasury In ationProtected Securities (TIPS) remain relatively low,” he said, adding that “survey-based measures have also slipped in the last year.” In ation expectations can also be sensitive to oil price movements, he said, adding that while prices have recently increased due in part to political developments in Saudi Arabia, the increase would likely be limited because the U.S. tends to produce more oil when prices rise. Real Economic Performance Regarding the second factor that could drive in ation higher, i.e., a faster pace of economic expansion, Bullard looked at U.S. real GDP growth. 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 “The data since the nancial crisis suggest that the U.S. has converged to 2 percent real GDP growth,” Bullard said. He added that U.S. real GDP grew at an annual rate of 2.1 percent in the rst half of 2017. Meanwhile, second-half real GDP growth is showing some improvement from the rst half of the year, with current tracking estimates near 3 percent. However, “Real GDP growth will likely be slower in 2018 than it has been in the second half of 2017,” he said. Turning to U.S. labor markets, Bullard noted that the pace of employment growth has slowed since 2015 and that the unemployment rate, at 4.1 percent in October, is relatively low. However, he said that low unemployment is probably not a harbinger of higher in ation, since the statistical relationship between unemployment and in ation has broken down during the last 20 years. “Even if the U.S. unemployment rate declines substantially further, the effects on U.S. in ation are likely to be small,” he said. U.S. Financial Conditions Bullard also pointed to U.S. nancial conditions, which are currently considered easy, or “low stress,” according to commonly used indexes. These indexes take into account factors such as market volatility, which has been low, and interest rate spreads, which have been relatively narrow. “However, these indexes have an important asymmetry: High-stress readings are associated with economic weakness. Low-stress readings do not reliably predict future economic outcomes,” he explained. “The current low readings probably do not contain any important signal at this point.” Conclusion Bullard reiterated that in ation has surprised to the downside this year and that “in ation expectations remain below the level that would be historically consistent with the FOMC’s in ation target.” Regarding the performance of the economy, he said that “real GDP growth looks like it may surprise to the upside during the second half of 2017 before shifting toward slower growth in 2018.” He added that low unemployment readings are probably not an indicator of meaningfully higher in ation over the forecast horizon. In terms of U.S. nancial conditions, he noted that low nancial market stress readings do not have strong predictive content for the economy. Given these factors, Bullard concluded, “The current level of the policy rate is appropriate given current macroeconomic data.” Related: View photos of visit to Louisville. 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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