Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank may begin tightening monetary policy earlier than officials previously expected, while Atlanta Fed President Dennis Lockhart urged more patience.
"The evidence is leading toward an earlier increase than would have been in the works earlier this year," Bullard said in an interview yesterday with Kathleen Hays on Bloomberg Radio in Jackson Hole, Wyoming. "Labor markets have improved quite a bit relative to what the committee was thinking."
Central bankers from around the world are gathered in the Rocky Mountains for the Federal Reserve Bank of Kansas City's annual symposium, which this year is focused on labor markets. Bullard's remarks echo minutes of the July Federal Open Market Committee, which showed Fed officials raising the possibility they might raise rates sooner than anticipated.
Bullard said he sees a "dual risk" if the Fed is late in raising rates. The Fed has held its benchmark rate close to zero since December 2008.
"One would be inflation, but the other would be financial stability, and it's substantial," he said.
Atlanta's Lockhart, who spoke in a separate Bloomberg Radio interview yesterday, still warned of the risk of "moving prematurely and snuffing out some progress."
"I have misread the potential for higher growth too many times before" and want to be "cautious," he said. "I want to wait a little bit longer."
Neither Lockhart nor Bullard votes on the FOMC this year.
The Fed last month highlighted what it called "significant underutilization of labor resources" in its policy statement as a justification for continued easy-money policies. Minutes of the gathering, released this week, showed some participants "were increasingly uncomfortable" with the committee's forward guidance on keeping its benchmark rate low for a "considerable time" after ending its quantitative easing program of monthly asset purchases.
"As we get closer to the date when QE ends we have to think about how do we want to reshape our thinking on this," Bullard, 53, said in the interview. "You can't just keep saying considerable period forever."
The jobless rate was at 6.2 percent last month, down from a post-recession high of 10 percent in October 2009, while the economy added 209,000 jobs.
Lockhart, 67, said he expects the first rate increase to take place in the middle of 2015. Bullard reiterated he expects tightening to start at the end of the first quarter next year.
"It's very important we have high confidence in the progress," Lockhart said. For example, "there's been little indication so far that wages are rising," he said.
