Fed’s Bullard: ‘In Good Shape’ to Raise Rates in September
St. Louis Fed president says GDP data cleared away worries over outlook
NEW YORK--Federal Reserve Bank of St. Louis President James Bullard said Friday economic data seen since central bankers gathered this week are bolstering the case for raising short-term rates when officials meet in September.
“We are in good shape” for increasing the Fed’s currently near-zero short-term rate target at the Sept. 16-17 central bank gathering, Mr. Bullard said in an interview with The Wall Street Journal. He said officials needed to see how growth data released Thursday shaped up before clearing the way to act.
Mr. Bullard shrugged off a report Friday showing surprising tepid wage gains, saying he isn’t that worried about that situation right now.
The second-quarter gross domestic product data, which showed a 2.3% annualized rise and a revision to activity over the first three months of the year into positive territory from the previously reported decline, affirms the economy is essentially ready to handle a modest boost in borrowing costs, he said.
The negative first quarter was a “pretty serious” issue for the Fed and a clear reason to hold off on rate rises, Mr. Bullard explained. “We had to get that behind us before we could get to the first rate rise. It is behind us and the outlook remains fairly good for the economy.”
Mr. Bullard was the first central bank official to speak publicly since the U.S. central bank’s rate-setting Federal Open Market Committee gathered to deliberate on monetary policy Tuesday and Wednesday.
At the meeting, Fed officials acknowledged having made further progress toward meeting their employment goals—at 5.3% the unemployment rate is close to the top end of the range officials consider the nation’s long-run joblessness trend. But central bankers also noted current inflation remains below their 2% target, amid expectations of a gradual rise back to desired price pressure levels.
The outcome of the Fed’s meeting continued to prepare the way for a rate rise most officials have already said is likely this year. Over the summer a number of officials have pointed to the Fed’s next meeting in September as a likely time to take the first step in pushing short-term rates back to more historically normal levels. Mr. Bullard stressed all Fed actions would be driven by incoming data, but even so, he indicated he is very open to action next time officials meet.
“We are good position to make the first normalization move,” Mr. Bullard said. “My sense is that a 25 basis-point move would essentially be a nonevent in financial markets,” he said, referring to the likely 0.25% increase the first move is expected to be.
Mr. Bullard doesn't currently vote on the FOMC, but he is an influential voice on monetary policy matters. In recent comments ahead of the interview, he had expressed support for raising rates this year and had nodded toward September. He said he would have voted for Wednesday’s holding action. “I would have supported the committee’s decision to wait and get more data and make a decision at the September meeting.”
Complicating the Fed outlook was a report Friday that showed evidence of a much-desired pickup in wage growth may be a mirage. During the second quarter, U.S. labor costs rose by their slowest pace in three decades, gaining a mere 0.2% against an expected rise of 0.6%.
“I though the GDP data was confirmation” of the healthy outlook that lies ahead of the U.S., Mr. Bullard said. “I’m not going to put as much weight on the wage data,” which on a longer-run trend basis is pretty much where he expected it would be given inflation and productivity factors, he said.
Mr. Bullard also said he remains confident inflation will start pushing back to the Fed’s 2% target as the impact of weak oil prices and the strong dollar fades. He is confident inflation will be back to desired levels in 2016.