James Bullard assesses how close the FOMC is to its goals

James Bullard assesses how close the FOMC is to its goals (Part 1 of 7)

James Bullard assesses how close the FOMC is to its goals

James Bullard weighs in

The president and CEO of the Federal Reserve Bank of St. Louis, James Bullard, spoke on the economy and monetary policy while addressing the Tennessee Bankers Association’s annual meeting in Palm Beach, Florida, on June 9, 2014.

The dual mandateEnlarge Graph

Bullard pointed out that the Federal Open Market Committee (or FOMC) has moved closer to its macroeconomic goals. The move has been supported by improving economic conditions in the U.S. The FOMC has been mandated the following dual goals by the Congress.

  • Attaining maximum employment
  • Price stability—an inflation rate close to the target inflation rate

The credit crisis

The credit crisis of 2008–2009, which was a result of Americans with the poorest credit being leant money to purchase houses they couldn’t afford, impacted the U.S. economy badly. Broad market ETFs like the SPDR S&P 500 (SPY), and the iShares S&P 100 (OEF), real estate ETF like the Vanguard REIT Index ETF (VNQ), and banks like Citigroup Inc. (C) and Bank of America (BAC) all saw their prices slump.

With the U.S. economy slowly recovering from its 2008–2009 crisis abyss, the unemployment rate is trending downwards, along with the inflation rate moving towards its 2% long-term target. In short, we can see the key macroeconomic variables trending towards their pre-crisis levels.

At the same time, Bullard also noted that the Fed’s monetary policy stance is still far from its pre-crisis settings.

The asset purchase program is the Federal Reserve’s initiative to provide much-needed liquidity to the U.S. economy, following the 2009 credit crisis, by purchasing mortgage and Treasury bonds from the market. The Fed’s tapering initiatives aim to reduce the Fed’s monthly purchases.

Bullard remarked, “The monetary policy stance remains far from normal, despite recent reductions in the pace of asset purchases.” Bullard shared his views on the state of the labor market and inflation to support his statement.

Read on to the next part of this series to see why Bullard thinks the FOMC is much closer to its goals.

The Realist Discussions

  • Robert Manor

    Bullard’s observations and Jain’s analysis are excellent. Objective data such as a firming in housing rental and sale prices, supported by anecdotal evidence such as the increasing number of help wanted signs in shop windows, point to a recovering economy. Even the current, albeit small, bubble in equities is a positive sign.

    Unaddressed, however, is income inequality.

    The United States of America suffers the widest disparity of wealth and poverty among its people of any major developed democracy. Modest efforts to remedy this, for example raising the minimum wage and reducing the tax subsidies of the rich, are long overdue and show no sign of imminence.

    Our main economic obstacle is obvious — the inequitable distribution of wealth.