The time has come to raise the fed funds target rate and start edging the Fed's balance sheet "toward more normal settings," Federal Reserve Bank of St. Louis President and CEO James Bullard said Thursday.
"During 2015, I have been an advocate of beginning to normalize the policy rate in the U.S.," Bullard told a Cato Institute conference, according to prepared text released by the Fed. "My arguments have focused on the idea that the U.S. economy is quite close to normal today based on an unemployment rate of 5 percent, which is essentially at the Committee's estimate of the long‐run rate, and inflation net of the 2014 oil price shock only slightly below the Committee's target."
Meanwhile, he noted, the policy rate is still near zero and an extra $3.5 trillion is on the Fed's balance sheet.
"Prudence alone suggests that, since the goals of policy have been met, we should be edging the policy rate and the balance sheet back toward more normal settings," he said.
Inflation is skewed by "an outsized oil price shock," but using the Federal Reserve Bank of Dallas's trimmed mean inflation rate, inflation is 1.7%, much closer to the 2% fed target. "By these measures, the committee's goals have been met," he said. "On the other hand, the committee's policy settings remain far from normal."
