A fed funds rate of 0.63% for the next two and a half years is appropriate and "risks associated with this projected policy rate are likely to the upside," Federal Reserve Bank of St. Louis President James Bullard repeated Tuesday.
Reiterating a theme from a speech June 30, Bullard discussed the St. Louis Fed's new narrative which "delivers a simple forecast of U.S. macroeconomic outcomes over the next two and a half years," according to the Fed, with real gross domestic product (GDP) growth of 2 percent, an unemployment rate of 4.7% and a Dallas Fed trimmed-mean personal consumption expenditures (PCE) inflation rate of 2%.
"In the new narrative, the concept of a single, long-run steady state is abandoned. Instead, there is a set of possible regimes that the economy may visit," he said. Regimes are considered persistent and changes between regimes, while possible, are not forecastable. In terms of monetary policy under this new narrative, the implication is "the policy rate would likely remain essentially flat over the forecast horizon to remain consistent with the current regime."
