The Federal Reserve is likely to tighten monetary policy by year-end, first by letting a runoff of its balance sheet occur, though it is “reasonable to expect a fed funds rate increase” in that time frame as well, according to Federal Reserve Bank of St. Louis president James Bullard.
Cautioning that the Fed needs to see more data before planning its next move, Bullard said growth in the first quarter was “a bit softer than expected” and joblessness remains high, so there will be no hurry to tighten policy.
“The Fed is in a good position to go on 'pause’ and collect more data about the economy” and see how conditions are before going forward, the Fed president said in an interview Wednesday on Bloomberg TV. He defined “pause” as the “fed funds rate stays where it is, the balance sheet stays where it is, policy rate stays where it is, and language stays where it is.”
Exiting the accommodative policy, he said, will be “complicated” since there are “a lot of moving pieces” and there could be several correct ways to exit. He said he believes the Fed will use a “balance-sheet first” exit.
On inflation, Bullard said it concerns him, but expectations, as measured by TIPs — Treasury inflation-protected securities — “has drifted back down.”
