Federal Reserve Bank of St. Louis President James Bullard said the Fed will probably signal the path for interest rates based on "qualitative" judgments of the economy, moving away from a pledge to begin considering higher rates when unemployment falls below 6.5 percent.
Policy thresholds — committing the Fed to record low rates so long as the outlook for inflation doesn't exceed 2.5 percent and unemployment is 6.5 percent or higher — "have been very useful" and "served their purpose" by anchoring interest-rate expectations when unemployment was "much higher," Bullard said today on a panel in New York. He doesn't vote on monetary policy this year.
The jobless rate unexpectedly declined in January to 6.6 percent, according to a Labor Department report, just above the Fed's 6.5 percent threshold for considering an increase in the benchmark interest rate.
"We all knew the day would arrive when the unemployment rate would go through the threshold," and the "natural thing to do" is to switch to more qualitative guidance, he said.
Policy makers have reinforced their assurances that interest-rate increases aren't imminent by saying the main interest rate probably will stay low "well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below" their 2 percent target.
"We have to go back to more traditional forms of policy where we have more qualitative judgments because we're getting much closer to a more normal economy," Bullard said.
